GEM GAZE
March 2011
Best of both worlds
Arbitrage funds thrive in a roller-coaster market. The benefits of arbitrage funds are best enjoyed during volatile markets, primarily due to the stability in the investment strategy of such funds. To attain the returns with bare minimum risk, the asset allocation of arbitrage scheme is split mainly between equity and debt components. The basket of arbitrage funds has provided an average return of 7% over the past one year, which is lower than those of the ultra short term debt funds. Over the past two years, these funds have done better than the liquid fund category. However, if we consider the tax advantage that the equity-oriented arbitrage funds offer, the post-tax returns of arbitrage funds look much better.
Currently, the Arbitrage Fund category is populated by 16 funds. Post 2008, some have changed colours and have transformed into pure debt funds. GEMGAZE March 2011 has narrowed down the list to five funds, considering their consistent performance.
UTI SPREAD Fund Gem
Spreading its wings
This five-year old five star fund sports an AUM of Rs. 116.34 crore. Though its one-year return of 5.59% has fallen short of its category average of 6.67% by a narrow margin, its consistent performance since inception may goad us to set this minor blip aside as a temporary aberration. Its average outperformance has always been higher (average of 22 basis points) than that of the underperformance (4 basis points).That is definitely a reward for its bold stance that often goes against the general market trend. A mere 7.85% of the portfolio is in equities, with services and technology being the top sectors. The entire assets allocated to equity are in 12 mid and small cap stocks. 59% of the assets are in debt with 33% in others. The low allocation to equity can partially explain the shortfall in one-year return, besides being instrumental in making it lose its equity-oriented tag. While the portfolio turnover ratio is a massive 870.1%, the expense ratio is very low at 0.92%.
HDFC Arbitrage Fund Gem
Silent resilience
In its three-year old existence, HDFC Arbitrage Fund has been able to reach an AUM of a mere Rs 76.18 crore. HDFC Arbitrage Fund’s trump card has been its resilience in a falling market. If we look at the period from January 2008 to March 2009, the market had been in the red for 10 months. Overall, during 11 of these 13 months, the fund has outperformed the category average. On the other hand, in the five months when the market closed in the green, the fund has been able to beat the category average in just two months. The one-year return of the fund is 7.31% as against the category average of 6.67%.This fund has a penchant for the energy sector. The sectors that come second and third in preference are services and FMCG. Top 5 holdings constitute 19.56% of the portfolio. Equities constitute 66% of the portfolio with 73% in mid and small cap stocks. The portfolio has 47 stocks and the portfolio turnover ratio is 100%. The expense ratio is as low as 0.83%.
Kotak Equity Arbitrage Fund Gem
Consistent calibre
Incorporated in September 2005, Kotak Equity Arbitrage Fund has an AUM of Rs 168.70 crore. The one-year return of the fund is 6.99% as against the category average of 6.67%. Top five holdings constitute 25.96% of the portfolio, with the equity exposure continuing to be nil and debt constituting 25% of the portfolio. The portfolio turnover ratio is 89.38% and the expense ratio is 0.95%.
JM Arbitrage Advantage Fund Gem
Whither advantage?
The Rs 78.80 crore JM Arbitrage Fund, incorporated in 2006, has earned a 1-year return of 6.48% a tad less than the category average return of 6.67%. Top five holdings constitute 32.52% of the portfolio with services, FMCG, and financial services forming the top three sectors. Equity constitutes 70.68% of the portfolio with 88% in mid and small cap stocks. There are 31 stocks in the portfolio. The portfolio turnover ratio is 18.76%. The expense ratio is 1.01%.
SBI Arbitrage Opportunities Fund Gem
Expensive opportunity
SBI Arbitrage Opportunities Fund, incorporated in October 2006, has an AUM of Rs 89.72 crore. Its one-year return is 6.56 % almost on par with the category average return of 6.67%. The top five holdings constitute 32.21% of the portfolio. Energy, finance, and services are the top three sectors. 65% of the portfolio is made up of equity with 53% in mid and small cap stocks. There are 33 stocks in the portfolio with a very high portfolio turnover ratio of 1408%. The expense ratio is very high at 1.22%.
March 2011
Best of both worlds
Arbitrage funds thrive in a roller-coaster market. The benefits of arbitrage funds are best enjoyed during volatile markets, primarily due to the stability in the investment strategy of such funds. To attain the returns with bare minimum risk, the asset allocation of arbitrage scheme is split mainly between equity and debt components. The basket of arbitrage funds has provided an average return of 7% over the past one year, which is lower than those of the ultra short term debt funds. Over the past two years, these funds have done better than the liquid fund category. However, if we consider the tax advantage that the equity-oriented arbitrage funds offer, the post-tax returns of arbitrage funds look much better.
Currently, the Arbitrage Fund category is populated by 16 funds. Post 2008, some have changed colours and have transformed into pure debt funds. GEMGAZE March 2011 has narrowed down the list to five funds, considering their consistent performance.
UTI SPREAD Fund Gem
Spreading its wings
This five-year old five star fund sports an AUM of Rs. 116.34 crore. Though its one-year return of 5.59% has fallen short of its category average of 6.67% by a narrow margin, its consistent performance since inception may goad us to set this minor blip aside as a temporary aberration. Its average outperformance has always been higher (average of 22 basis points) than that of the underperformance (4 basis points).That is definitely a reward for its bold stance that often goes against the general market trend. A mere 7.85% of the portfolio is in equities, with services and technology being the top sectors. The entire assets allocated to equity are in 12 mid and small cap stocks. 59% of the assets are in debt with 33% in others. The low allocation to equity can partially explain the shortfall in one-year return, besides being instrumental in making it lose its equity-oriented tag. While the portfolio turnover ratio is a massive 870.1%, the expense ratio is very low at 0.92%.
HDFC Arbitrage Fund Gem
Silent resilience
In its three-year old existence, HDFC Arbitrage Fund has been able to reach an AUM of a mere Rs 76.18 crore. HDFC Arbitrage Fund’s trump card has been its resilience in a falling market. If we look at the period from January 2008 to March 2009, the market had been in the red for 10 months. Overall, during 11 of these 13 months, the fund has outperformed the category average. On the other hand, in the five months when the market closed in the green, the fund has been able to beat the category average in just two months. The one-year return of the fund is 7.31% as against the category average of 6.67%.This fund has a penchant for the energy sector. The sectors that come second and third in preference are services and FMCG. Top 5 holdings constitute 19.56% of the portfolio. Equities constitute 66% of the portfolio with 73% in mid and small cap stocks. The portfolio has 47 stocks and the portfolio turnover ratio is 100%. The expense ratio is as low as 0.83%.
Kotak Equity Arbitrage Fund Gem
Consistent calibre
Incorporated in September 2005, Kotak Equity Arbitrage Fund has an AUM of Rs 168.70 crore. The one-year return of the fund is 6.99% as against the category average of 6.67%. Top five holdings constitute 25.96% of the portfolio, with the equity exposure continuing to be nil and debt constituting 25% of the portfolio. The portfolio turnover ratio is 89.38% and the expense ratio is 0.95%.
JM Arbitrage Advantage Fund Gem
Whither advantage?
The Rs 78.80 crore JM Arbitrage Fund, incorporated in 2006, has earned a 1-year return of 6.48% a tad less than the category average return of 6.67%. Top five holdings constitute 32.52% of the portfolio with services, FMCG, and financial services forming the top three sectors. Equity constitutes 70.68% of the portfolio with 88% in mid and small cap stocks. There are 31 stocks in the portfolio. The portfolio turnover ratio is 18.76%. The expense ratio is 1.01%.
SBI Arbitrage Opportunities Fund Gem
Expensive opportunity
SBI Arbitrage Opportunities Fund, incorporated in October 2006, has an AUM of Rs 89.72 crore. Its one-year return is 6.56 % almost on par with the category average return of 6.67%. The top five holdings constitute 32.21% of the portfolio. Energy, finance, and services are the top three sectors. 65% of the portfolio is made up of equity with 53% in mid and small cap stocks. There are 33 stocks in the portfolio with a very high portfolio turnover ratio of 1408%. The expense ratio is very high at 1.22%.
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