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Travelling With the Bear

Since the start of 2005, the Sensex has gained 30.83 per cent. But such a sparkling performance has not been without bouts of correction. Here are the funds that managed to do well when markets fell

Since the start of 2005, the Sensex has gained 30.83 per cent. But such a sparkling performance has not been without bouts of correction. In between the continuing rally of the stock markets, there have been three phases when the markets headed southwards.

The first of these phases was between the start of 2005 till January 24 when the Sensex shed over 7.5 per cent. Bears yet again tried to take control of the markets during the two month period of March-April 2005 when the Sensex again lost close to 7.5 per cent. Subsequently there was a huge rally. But the winds changed direction during the month of October when the benchmark lost 11 per cent.

During the first and the third correction periods, diversified equity funds performed marginally better than the Sensex. In fact, during these periods, none of the diversified equity funds delivered positive returns. However, things were different during the correction period of March-April 2005, when diversified equity funds lost only 3.48 per cent on an average as against 7.47 per cent loss of the Sensex. The variation on the returns on funds was also high, with the returns ranging from an impressive 9.61 per cent to as low as negative 11.90 per cent. We looked for funds that have managed the volatility well during these periods to stay in the top quartile in each of these correction phases. There were in all seven such diversified equity funds. Surprisingly, four of them turn out to be mid-cap funds while the other three are the ones that invest in stocks of multi-national companies.

Mid-Cap Orientation
As it turns out, all these funds are skewed towards mid-cap stocks, with the only exception being Birla MNC which has shifted its focus to large cap stocks in the last three-four months. If we compare the returns of the CNX Midcap Index with the Sensex, then this might seem quite justified. Barring the first correction period, the mid-cap index has lost lesser than the Sensex, which is the index of large-caps. However, this does not take the credit away from these funds since there have been other funds which have lost much more despite a highly mid-cap dominated portfolio.

MNCs Shine
Interestingly, all the three funds that are mandated to invest in the multinational companies lost less than most of the other diversified equity funds. A closer look suggests that there are a number of stocks that figure in the portfolios of all three funds. Moreover, even their top sector holdings are also similar- FMCG, Healthcare and Basic Engineering are among the top sectors in all the three funds. Thus, one can reasonably say that the stocks of multinational companies seem to have suffered a lower impact as a result of the market gyrations.

The Role Of Cash
A higher allocation to cash and equivalents may also have helped some of these funds to reduce losses. Of these funds, Chola Midcap Fund and Sundaram Select Midcap Fund generally keep cash exposure on the higher side. But as per the April 2005 portfolio, their cash exposure was significantly higher at 28.47 and 31.16 per cent respectively. Apart from these two, Birla Mid Cap and Franklin India Prima also had cash in double digit figures during April, while for Birla MNC Fund it touched 8 per cent, which was at the higher side for the fund.