Monday, November 12, 2012


November 2012

With the postponement in the implementation of DTC coupled with the infusion of life in the stock market, all the funds that adorned the November 2011 GEMGAZE have retained their pre-eminent position in the November 2012 GEMGAZE also and the honeymoon continues...

Magnum Taxgain Fund

Grand old diversified dad 

SBI Magnum Taxgain is one of the oldest and largest tax-saving ELSS schemes in the country with an AUM of Rs 4648 crore. An interesting feature of the fund is its stock picking which is more inclined to companies that have disproportionately large market share, with 75% of the funds in large cap stocks. For a fund with a massive asset size, SBI Magnum Taxgain's portfolio is well diversified to incorporate an average of about 50 stocks across sectors. The top 5 holdings account for 26.25% of the portfolio. The top three sectors that the fund invests in are finance, energy, and technology sectors, with an exposure of 24%, 12%, and 11%, respectively. One-year return of the fund is 14.5% as against the category average of 10.74%. The expense ratio is 1.81% and the portfolio turnover ratio is 29%.

HDFC Tax Saver Fund Gem

Temporary lull

At Rs 3224 crore, it is the second largest ELSS fund in the industry. With the exception of 2007, the fund has done well in falling as well as rising markets. HDFC Taxsaver takes contrarian bets but its performance history speaks for itself. HDFC Taxsaver tends to take a top-down approach before going for potentially outperforming stocks. But in this strategy, it could well deviate from the current market position. With no bias towards any market cap, this fund is a great multi-cap offering with a long history of impressive performance. Currently, large caps account for 56% of the portfolio. The rising asset base has led to an increase in the number of stocks to 62. With the top 5 holdings accounting for 24%, the fund looks well diversified. The expense ratio is 1.85% and turnover ratio is 20.58%. The fund's lower turnover implies that it adopts a buy and hold strategy. In the past one year, the fund has earned a return of 7.46% as against the category average of 10.74%. Many tax saving funds have taken a deep cut in their NAV during bear markets, owing to their mid-cap focus. HDFC Tax Saver, though, has learnt from past lessons and has increased its large-cap exposure. However, it holds more mid-cap stocks when compared with Fidelity or Canara Robeco's tax-saving schemes, which have a clear large-cap focus. Although the fund gradually reduced its exposure to under performing capital goods in the past year it continues to allocate 6% of the assets to the sector. But it still is a strong holding…With a three-year compounded annual return of 27%, it beat the category average of diversified equity funds by 5 percentage points. Over a five-year period, it clocked compounded annualised return of 5.6% and bettered its benchmark CNX 500 by 2.6 percentage points.
Sundaram Tax Saver Fund Gem

Change at the helm of affairs

There has been a recent fund manager change at Sundaram Tax Saver Fund. Manager and head of equities Satish Ramanathan relinquished portfolio management duties of this fund in Jan 2012. He continues to serve as the head of equities at Sundaram and oversees the investment function. The fund is now jointly managed by managers, Srividhya Rajesh and J. Venkatesan. Both managers are old hands at Sundaram and share roughly eight years of portfolio management experience between them. Otherwise, the investment approach remains largely unchanged: The portfolio’s sector weights are loosely aligned with those of the benchmark index BSE 200 with maximum deviations at +/- 8% (absolute), a change that was implemented in early 2011 due to the fund’s ordinary showing in the 2009-10 periods. However, like before, stock selection is independent of benchmark weights, with the managers choosing stocks based on their conviction. Taking cash calls remains integral to the strategy, with the managers increasing cash levels during market downturns or when there is a dearth of investment opportunities. The managers also take contrarian bets when they believe valuations are attractive. In the last couple of years, the fund has seen its AUM increasing substantially from around Rs 480 crore to more than Rs 1,378 crore. Top five holdings constitute 21% of the portfolio with a total of 53 stocks, with 52% of the portfolio invested in large-cap stocks. Energy, finance, and FMCG are the top 3 sectors. The fund follows both top-down and bottom-up approach for making investments. Its one-year return has been 13.78% as against the category average of 10.74%. The expense ratio is 1.96% and the portfolio turnover ratio is 133%.
Canara Robeco Equity Tax Saver Fund Gem
Stands out in the crowd

Canara Robeco Equity Tax Saver’s focus on growth-oriented companies has made it stand out in the crowd. Going by its performance over the past five years, consistency is what stands out, whether in a bull market or a bear one. This Rs 456 crore fund has been pretty successful in utilising the agility that a small fund offers by spotting opportunities and capitalising on them. There are 55 stocks in the portfolio. Allocation to the top 5 holdings (24%) is in line with the category average. The massive out performance though has been possible as a result of 20% holding in mid cap stocks. One-year return is 13.15 % as against the category average of 10.74%. The expense ratio is 2.32% and portfolio turnover ratio is 39%. It has been following a defensive strategy of being overweight on sectors such as pharmaceuticals and fast moving consumer goods and underweight on rate-sensitive sectors. This explains its 12% return in the last five years, when the Sensex delivered –2% and mid- and small-cap indices -3 % and -5 %, respectively. The fund's strategy of investing in companies that have less debt and good operating cash flows has worked for it. With a return since launch of around 14.5% and a below average risk grade, this has given decent returns. The fund manager ensures a diversified portfolio with no market cap or sector bias.

Religare Tax Plan Gem

Consistent performer

The fund's ability to provide downside protection accompanied with decent returns during markets rallies help investors over the long run. The risk of investing in this fund lies in its aggressive sector bets. With a corpus size of Rs 120 crore, Religare Tax Plan is one of the smallest schemes in its category, but it packs in quite a punch. The top three sectors are finance, energy, and FMCG. The fund invests across market capitalisation and sectors and spreads its assets over 20-50 stocks without being overly diversified and the top 5 holdings constitute 27%. At present, large cap stocks make up 59% of the portfolio. The one-year return is 10.8% as against the category average of 10.74%. The expense ratio is 2.48% and the portfolio turnover ratio is 44%.

DSPBR Tax Saver Fund Gem

Not for the faint-hearted

DSP Black Rock Tax Saver gets hit harder during bad times, but bounces back impressively in rallies. This fund is not for the faint hearted. Thanks in part to its tilt towards mid and small caps it gets hit harder during market turmoil, 2008 being a case in point. Despite exposure to FMCG and Healthcare and a high cash allocation, it lost more than the average. But it bounces back during rallies and over time the long-term performance is good. A sensible choice for the slightly adventurous, who are comfortable with a not-so-smooth ride. There was a change of guard at this fund’s helm of affairs in July 2012. Manager Anup Maheshwari has relinquished portfolio management duties (he continues to wield significant influence in the overall investment function given his role as the head of equities at DSP BlackRock) and  the fund is managed by Apoorva Shah, an experienced manager who has been with the fund company since April 2006. The investment process remains unchanged: The fund continues to follow a flexi-cap approach wherein the focus is to generate superior returns over a three-year period by moving across sectors and market caps in an unconstrained manner. The stock-picking is rooted to a bottom-up approach, where the main focus is on picking growth-styled stocks. Moreover, investors should note that the decision to invest substantially in small/mid-caps and take big sector bets can lead to higher downside risk in market corrections. Also, the manager’s decision to avoid taking cash calls is a positive, but it could result in the fund relatively under performing peers who get their cash calls right. Indeed, the fund tends to fare poorly in bear markets (2008 and 2011 are cases in point) due to the above-mentioned factors. That said the approach is likely to pay off in rising markets. DSPBR Tax Saver has a fund corpus of around Rs 729 crore. It has a growth-oriented multi cap portfolio with 61% of the corpus in large cap stocks. There are 94 stocks in the portfolio. DSP BR Tax Saver fund has offered 15.74% returns for the last one year as against the category average of 10.74%. The expense ratio is 2.21% and the portfolio turnover ratio is 130%.

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