With a large-cap dominated portfolio, the fund has delivered good returns over the years. Its five-year annualised return of over 28 per cent (ranking it 7th among 19 funds) is the proof of that. A relatively low expense ratio is another added advantage.
Though the fund under-performed its category during 2005, it has clawed its way back, beating an average peer in each of the last three quarters. Its large-cap orientation has helped the fund lose less than an average balanced fund during the recent collapse. Over the three-month period ended August 6, the fund was down 12.2 per cent while the category lost over 13 per cent.
The fund struggled in the first half of 2005 as it landed in the bottom quartile. It had turned defensive by reducing equity exposure to below 60 per cent since the third quarter of 2004, which had an impact on its performance. The fund made amends by pushing its equity allocation back to over 65 per cent in the second half of 2005 to catch up with its peers. Finally, it ended the year up 31.16 per cent, marginally short of the category average return of 32.56 per cent.
The fund's basic engineering picks, including Siemens and BHEL, worked wonders for it. Mid- and small-cap picks like Bharat Earth Movers, Thermax and FAG Bearings proved hugely rewarding. Moreover, select chemicals, construction and consumer non-durable stocks, such as Balrampur Chini, ITC and Williamson Tea Assam, helped the fund stage a recovery in the second half of 2005. The fund had staged a similar comeback in the past as well. For instance, it reacted to the underperformances in 2000 and 2001 by substantially cutting exposure to tech stocks and booked a place in the top half of the category in 2002. In the next two years, it was among the best five funds in the category. Sensing the opportunity, the fund manager increased allocation to mid- and small-caps, but made sure not to go overboard. This resulted in a large-cap dominated, diversified equity portfolio together with quality debt holdings that has worked for the fund.
On the debt side, the fund has been quality conscious. However, lately, while the debt allocation has remained in the range of 25-30 per cent, the fund has started betting on below AAA papers (which currently account for almost 10 per cent of the portfolio) to boost returns.