It all began late last year. After an exceptional 2003 when Magnum FMCG emerged out as the hottest member of the category, the fund was cruising well till October 2004. With an year to date return of 9.80 per cent, well ahead of peers Franklin FMCG (down 6.39 per cent) and Prudential ICICI FMCG (up only 0.15 per cent), the fund was all set to be crowned as winner. However, redemption pressure put a break on the fund's further progress. From a decent asset base of Rs 18.56 crore in October 2004, the fund was reduced to a Rs 4.23 crore fund by the end of the year. To honour redemption requests, the manager had to sell almost his entire portfolio. In November and December 2004, the fund had only one stock-United Breweries. Out of strength, the fund crawled thereafter to finish the year at the second place in the three-member category.
Magnum FMCG is still recovering from the shock. In the first eight month of this year it has delivered nearly 26 per cent and is behind both the 47.17 per cent category average and 30.80 per cent of benchmark BSE FMCG Index return. This was bound to happen. Constructing a sectoral portfolio from scratch in a booming market is a challenging task. After selling almost all its holdings in November last year, the fund had to buy many of them at higher levels. Interestingly, the fund manager decided to dump United Breweries in January to accommodate more stocks.
The fund has a checkered past. It did badly in 2000 and 2001. Even though this was a tough period for the sector, in the two years it lost nearly one third of the portfolio and recorded losses that were more than twice those of its peers. 2002 brought some respite. Though at second place, the fund still lost more than average peers. The silver lining was that for the first time it had been able to outperform the BSE FMCG Index. After two good years thereafter, the struggle is in progress once again.
The fund has always maintained a strong bias towards mid-caps. The attitude towards small-caps too has been liberal. This makes it a risky fund. However, continuity of fund manager Sandip Sabharwal since mid 2001 is a plus here. Conservative investor would do well to stay away from this offering.
This article was originally published on October 24, 2005.
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