Monday, September 10, 2007

Gem gaze

The glittering gems in the diversified equity space are on display! In a nutshell, consistency in performance over a 3 to 5 year period – beating the benchmark and powering peer pressure even during the market downturn – is what lends radiance to our prized collection. Fund Houses with strong systems and processes – religious adherence to investment mandate irrespective of market conditions, fund’s portfolio management style, the stock selection, consistency of holding, top holdings and sectoral concentration – score over the ones where fund managers call all the shots though the philosophy and mindset of the fund manager is accorded due importance.

HDFC Equity Fund

HDFC Equity, a large-cap tilted fund exhibiting sterling performance, is one of the most compelling options in the category of diversified equity funds. The fund’s portfolio management style epitomises its high risk nature. Its portfolio is characterised by concentrated stock and sectoral holdings. The top three sectors - technology, basic/engineering and automobile - account for almost 49 per cent of the portfolio. Though the portfolio tends to average around 30 stocks, the fund manager does not hesitate to take a big position. Concentrated stock holdings can expose a diversified equity fund to high levels of volatility; however it has uncannily managed to pitch in a reasonable performance on the volatility control front. If you have a moderate risk profile and are planning to build a long-term portfolio, your portfolio will be incomplete without HDFC Equity.

DSPML Opportunities

DSPML Opportunities Fund is an equity fund managed with a free flowing investment style, popularly known as an 'opportunities style' of investing. Given that it can take focussed exposures, the fund is better suited to investors with a high-risk appetite. However, in practice, the fund has been managed much like a diversified fund with well-spread-out sector exposures. The fund has 24 sectors in its portfolio with 35% of the assets in software, capital goods and petroleum and has restricted its exposure to any single stock to less than 7 per cent of the asset. Although, an opportunities fund, it is probably one of the more conservatively managed, predominantly large cap diversified equity funds.

Magnum Contra

Magnum Contra is a diversified equity fund that follows a contrarian strategy, the first to do so. It invests in scrips and sectors that are currently out-of-fashion, but hold potential. Usually, such scrips and sectors are available at cheaper valuations and tend to appreciate when the markets recognise their potential. A contrarian scheme in many ways works like a value fund that invests in undervalued scrips following a bottom-up stock-picking strategy. The fund management has demonstrated the ability to pick stocks ahead of others and exit some at the right time. The fund has slowly changed its strategy and is taking a higher exposure to large-cap stocks now, moving to 65 per cent large cap exposure from 50 per cent earlier. It continues to impress with its category beating performance but you must be patient to reap the gains.

Prudential ICICI Dynamic Fund

Prudential ICICI Dynamic aims to minimise downside risk by adopting a defensive strategy in a bull market. When markets are at a high, it builds cash position. Prudential ICICI Dynamic Fund follows a bottom-up stock-picking strategy and prefers to invest in companies that have the potential to compound their cash flows over the years.The equity portfolio of the scheme is well diversified; with around 20 sectors spread over 45 to 50 stocks. IT- Software, Consumer Non Durables and Industrial Products are the top three sectors contributing 38.17% of the overall portfolio. The fund portfolio is well spread out over larger, mid and small cap stocks.

Franklin India Flexi Cap

An equity fund with as limited a tenure as Franklin India Flexicap Fund (launched in January 2005) would not usually have figured so high on our list. But Franklin India Flexicap is no ordinary fund; it is backed by an experienced fund management team who have given us Franklin India Bluechip and Franklin India Prima. Franklin Flexicap was launched with a mandate to help it overcome the limitations of these illustrious predecessors. Unlike them, it can invest in companies regardless of the market capitalisation. Volatility being the name of the game in the market, it pays to invest in a solid scheme that benefits from companies of all sizes.

Consistent funds are the ones that should find a place in the core of your portfolio. The consistency displayed by these funds means that timing your entry or exit does not really matter with them. They survive the summit and the nadir of market cycles and emerge as the jewel in the crown paying due tributes to the prowess of fund management.

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