Good stock picking, diversification and timely sector shifts make the fund compelling
01-Nov-2006 •Value Research
Few funds would have witnessed a change in their fortunes as impressive as this one. From languishing in the ranks of the 40s, it dramatically leapt to the number one position in 2004. It has not under-performed the category in even a single quarter since September 2003. When Sandip Sabharwal took over in 2004, he turned it from a large-cap fund to a mid- and small-cap dominated one. In February 2004, large-caps constituted around 84 per cent of the portfolio. By October, it was down to 2.8 per cent. The shift coincided with the rally in mid-caps.
With a one- and three-year return of 57.57 per cent and 74.28 per cent, respectively the fund has delivered much more than the category average of 43.53 per cent and 45.11 per cent, respectively (as on October 25, 2006). But it is not meant for conservative investors and its aggressive investment style and heavy reliance upon mid- and small-cap stocks make it risky. It should not be among the core holdings of your portfolio. It has a tendency to invest aggressively in individual sectors. In March 2000, 40.22 per cent of the portfolio was in seven tech stocks. By September 2000, it rose to 51.91 per cent in eight stocks. The fund paid dearly for this. Now, construction accounts for 25.58 per cent of its portfolio, followed by basic/engineering which accounts for almost 16 per cent.
Though it has a tendency to invest aggressively in individual sectors, good stock picking, diversification and timely sector shifts have led to its top performance.
However, the present fund manager faces a challenge with the size of the fund. When Sabharwal took over in 2004, it was only a Rs 24-crore fund with 30 stocks. Now, a Rs 668-crore fund with 53 stocks is a bigger challenge.