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Emerging Star

In three-and-a-half-years of existence, it has used volatile mid- and small-caps extremely well to generate enormous wealth. But the strong performance has come at a time that suits its style

This hidden gem deserves attention. Top quartile returns in the last three calendar years place it in the league of hottest mid-cap funds. In the three-year period ending April 11, 2006, this fund's over 100 per cent annualised return makes it one of the top five funds in the category.

The start could not have been better. It was launched at a time when mid-cap stocks were about to explode. During the initial few months though, investors here had to negotiate with below average return. However, once the tide turned in favour of mid-cap stocks in 2003, this fund started to show its real worth. It made full use of the opportunity and ended 2003 as the third best equity fund with returns of 157.73 per cent. In the next two years too, it generated top quartile returns.

However, despite this superb performance, investors seem to have failed to spot this fund. The growth from Rs 156 crore in 2003 to Rs 407 crore at the end of 2005 looks good enough. However, a large part of it is due to the returns that the fund has generated.

The fund doesn't believe in buy-and-hold strategy much, as stocks keeps on coming and going out frequently. However, few stocks that the fund has held for the long-term have been multi-baggers. The fund also loves to sit on cash to exploit short-term opportunities. And with the market on its way up, the amount of cash has gone up substantially too-in 2005, cash formed an average one fourth of the fund's portfolio.

The fund has displayed ability to think against the herd. For instance, while sectors like technology and financial services are dominating the portfolios of majority of its peers, Sundaram Select Midcap does not give importance to them. They have figured among the least preferred sectors of the fund. On the contrary, the fund has shown interest in sectors like chemicals and construction and benefited from them. The fund manager has displayed skills to identify winners. For example, it was the first fund to spot the opportunity in I V R C L Infrastructures & Projects at the start of 2004. The fund has always believed in the virtues of diversification. However in the recent times, it has turned into an obsession-the fund spread its portfolio over 70 to 80 stocks through 2005.