Equity: Diversified | Value Research The fund has toned down its dangerously-concentrated portfolio to emerge as a compelling option
Fund Focus

Equity: Diversified

The fund has toned down its dangerously-concentrated portfolio to emerge as a compelling option

Birla Sun Life Equity: Out of Woods
This is one fund that has evolved over the years. From erratic performances and concentrated portfolios, it is now a more stable product.

It shot to fame in 1999 with a dazzling performance of 280 per cent. Investors then had to deal with two terrible years (2001 and 2002) when it underperformed the category average by a wide margin. But the fund pulled up socks and in the 15 quarters since 2003, the fund underperformed in just three. It also worked at taming down its dangerously concentrated portfolio.

Consider this. September 1998: 23 stocks (top three sectors at 42.36 per cent). December 1998: 30 stocks (top three sectors at 69 per cent). March 2000: 69 stocks (top three sectors at 76.82 per cent with technology at 62.13 per cent). The fund manager gets in and out of stocks and does not really buy to hold. Just a handful -Siemens, Pantaloon Retail, Tata Motors, Bharti Airtel, Maestros Mediline Systems, United Breweries (Holdings) Ltd - have been with the fund for years. Trent, first appeared in the June 1999 portfolio, was sold after some months and bought again in April 2002. Cadila Healthcare was picked up in 2000, sold within a year and bought in January 2004.

Like his philosophy with stocks, the fund manager does not favour any particular market cap. Large-cap allocation was high in 2001 (79 per cent), kept decreasing till 2004 (37.58 per cent) and moved up in 2005 (54.68 per cent). This year it has been decreasing (from 66 per cent in January 2006 to 45.12 per cent in November 2006).

As on December 26, 2006, the fund seemed to be doing well with a year-to-date return of 40.96 per cent (category average: 33.06 per cent).

Franklin India Prima Plus: Stable and Surefooted
Want a well-diversified, large-cap oriented portfolio with low volatility and fairly decent returns? Then Franklin India Prima Plus is your cup of tea.

Launched around the peak of the IPO boom in September 1994, it started off as a stock collector and had nearly 200 stocks in its kitty by March 1996. The relentless cleaning of the portfolio took years and the January 2001 portfolio revealed 40 scrips. Today, the fund has around 42 stocks (November 30, 2006).

Two years that stand out in the fund's performance are 1998 and 1999. Thanks to big bets in technology, the fund delivered 39 per cent and 209 per cent, respectively (category average: 4.47 per cent and 127 per cent). But in 2000, this fund fell harder at 31.89 per cent (category average: 24.27 per cent). Those days of racy returns are over. While the fund delivers positive returns, it just beats the category average. In 2003, its return of 107 per cent was still lower than the category average of 111 per cent. In 2002, it matched the category average returns and marginally beat the returns in 2004 and 2005. That is the essence of this fund: No flashy returns and no sleepless nights. Even during periods when the category delivered negative returns, this fund fell by a lesser percentage. In 2001, when the category delivered 19 per cent, this fund fell by around 5 per cent.

Right from January 2000, the fund has had on an average, 70 per cent of the portfolio in large-caps, a major factor contributing to the stability. The topmost holdings, Grasim Industries (8.15 per cent) and Infosys (6.61 per cent), have been with the fund for years. As on December 26, 2006, the two-year, three-year and five-year returns were higher than the category average.

HDFC Equity: All Seasons Pick
Since 1995 HDFC Equity has beaten the category average every calendar year, barring 1996.

In 2001, the fund fell by just 2.81 per cent (category average fall was 19 per cent). Since then, it has underperformed the category average in just five quarters and has been a top-quartile performer every year, barring 2004.

When mid- and small-cap stocks started to lose steam in 2005, the fund manager increased large-cap allocation and consequently, the fund ended 2005 returning 62.70 per cent (category average: 46.70 per cent). Though the portfolio tends to average around 30 stocks, give or take a few, the fund manager does not hesitate to take a big position. The top three sectors account for almost 49 per cent of the portfolio and the top three stocks account for 22.5 per cent (Infosys at 9.84 per cent). Though technology has been the most favoured sector this year, automobiles was one of the top sectors but its exposure has been decreasing and basic/engineering is getting priority. Allocation to the energy sector kept dropping but is again on the rise.

When the Supreme Court halted PSU disinvestment in September 2003, the fund sold its entire energy holding in October and built a fresh position in March 2004.

Bharti was bought in January 2004 and sold by June 2004. It reappeared in November and December 2005 portfolios and was again sold. It was bought again in March 2006, sold few months later only to be picked up in September 2006. The fund manager held Infosys for years but sold it in May 2004 and bought it in October (at higher levels, unfortunately).

As on December 26, 2006, its year-to-date, one-year, two-year and three-year returns were all ahead of the category average.

Magnum Contra: Cherry Picking
Being contrarian in nature to focus on out-of favour stocks, the fund had a very low exposure to technology in 1999. So no great returns that year and the next.

But, it fell by just 5.52 per cent in 2001 (category average: -19 per cent). The next year it gave a return of 32.74 per cent (category average: 19.43 per cent). The year 2003 saw it dip from the top quartile position when it gave a return just above the category average. In 2004, it shot to fame as the second best-performing fund with a 64.49 per cent return (category average: 25.84 per cent). In 2005, it was the third best-performing fund with a 71 per cent return (category average: 46.70 per cent).

The fund has a large-cap orientation. In 2003, large-caps constituted 72 per cent of the portfolio which decreased to an average of 46 per cent in two years. This year, large-caps on an average occupied 57.80 per cent of the portfolio.

The new fund manager in mid-2005 has focused on toning down the aggression.

It is extremely diversified across 48 stocks (as on November 30, 2006) with the top three sectors accounting for just around 36 per cent of the total allocation. The topmost holding -State Bank of India - accounts for 4.78 per cent while the top three stocks constitute 13.71 per cent of the portfolio. This is a significant shift from its earlier aggressive stance. At one time some stocks held a significant portion of the portfolio: Hindustan Petroleum (17.22 per cent), Container Corporation of India (12.02 per cent), ACC (11.89 per cent).

As on November 30, 2006, the topmost sector - construction - accounted for 14.90 per cent of the portfolio.

Reliance Vision: Growth Horizon
Not a great performer initially, it stole the show in 2002 with a return of 74.58 per cent (category average: 19.43 per cent). From a ranking of 23, it shot to number one position. Skeptics who wrote it off as a stroke of luck had to shut up next year when the fund delivered 155.16 per cent (category average: 111.62 per cent).

Just when the fund managed to wow everyone, it delivered only 19.81 per cent in 2004 (category average: 25.84 per cent). In 2005, it performed better at 53.47 per cent (category average: 46.70 per cent).

These volatile returns are typical of the fund. For instance, in 2001, it badly underperformed the category average in the first quarter but outperformed it in the remaining. Year 2002 delivered much more than the category average in the first two quarters, underperformed in the third, marginally beat the category average in the fourth. 2003 outperformed the category average in all quarters but managed to do so in only two quarters of 2004. Though mid-caps were responsible for the performance in those two years, the fund is not hell bent on only investing in them. Mid-2002, the small- and mid-cap allocation at one time moved higher than 80 per cent. This year, the fund has averaged around 30 per cent in small- and mid-cap allocation. Automobiles has been the topmost sector the entire year. From a peak of 19.47 per cent of the portfolio (July), it is now 16.52 per cent (November). Diversified across 34 stocks, the top three sectors account for around 42.41 per cent of the portfolio with the top-most stock, Divi's Labs, at 5.66 per cent.

As on December 1, 2006, the fund beat the category average in its year-to-date, one-year, two-year and three-year returns. Its five-year returns are 64.40 per cent (category average: 44 per cent).

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