"It is our belief that pharmaceutical, technology and education sectors have potential to grow faster than the economy for a long period of time"
10-May-2001 •Aabhas Pandya
Launched in the year 1995, Birla Advantage just managed to guard its capital as the NAV was below par levels, but the fund edged up smart gains in 1999 backed by the troika of IT, pharmaceuticals and FMCG stocks. An average 65% technology exposure in 2000 washed away the earlier gains. However, beginning 2001, the fund has downsized its technology with higher exposure in pharma, FMCG and old economy sectors and has posted an annualised return of 18.75% till May 31, 2001.
Q.What is investment strategy of Birla Advantage?
JB: The investment strategy of Birla Advantage Fund (BAF) is to invest for the long-term in fundamentally strong growth companies. We do not try to do a top down allocation of capital.
Q.Does the fund follow any specific stock selection criteria before investing?
JB: Stock selection is guided by factors such as long-term wealth creation potential of a firm. We look into the capability, ethics and energy of management. We try to buy these companies at a reasonable valuation.
Q.Does the fund follow any specific risk control measures?
JB: Risk control comes through overall limits on individual stocks, and internal guidelines for valuation of stocks. These guidelines deal with valuation relative to peer group and absolute valuation relative to prospects. We also try to limit our exposure to any one sector.
Q. The fund drastically reduced its technology exposure. Is this on account of fundamental change in the fund strategy to remain diversified? If so, is the change permanent?
JB: We had reduced our exposure to technology owing to apprehensions about rapid deterioration in economic prospects. Issues relating to overvaluation or otherwise will always exist, and are not sufficient reason for reducing exposure. But economy-wide changes have potential to overwhelm the best efforts of even top-notch companies. As such, we decided to reduce systemic risk at that point. Now that the impact of warnings and a reduced growth scenario is already being reflected in valuation, we have increased our exposure significantly.
We have remained fairly well diversified in the past. Emphasis on diversification has increased further now. As mentioned above, the change in outlook for technology is not permanent, and our portfolio will reflect this.
Q.What is the your outlook on the technology sector?
JB: As always, we remain strong votaries of the technology sector, and this view will be reflected in our equity portfolios.
Q.The fund has turned overweight on pharma stocks in the last quarter. Why is the fund so bullish on the sector?
JB: We do not subscribe to a top-down weightage-dominated investment strategy. Cipla and Pfizer are strong performers in a competitive field.
Their performance so far has been quite good, and future prospects appear bright. That is why these two companies are a significant part of our portfolio. It is our belief that pharmaceutical, technology and education sectors have potential to grow faster than the economy for a long period of time. With the advent of private insurance companies, ability to pay for medical costs will increase. We also believe that chronic and lifestyle related diseases are on the rise, and well-managed pharmaceutical companies can benefit greatly from this trend.
Q.What has been the portfolio turnover of the fund in its tenure?
JB:. Portfolio turnover has been slightly higher than in the past, owing to increased volatility of share prices during this period.
Q.The fund lost 59% (1-year year ending March 30). What should an investor expect from Birla Advantage in terms of returns and risk?
JB: The year gone by has imparted many valuable learning experiences. We have made some changes in our style of functioning. As a result, the investor should expect better returns at lower risk. However, we remain vulnerable to systemic risks that we cannot control.