GEMGAZE

March 2014

 Volatility – a boon to arbitrage funds

 

With volatility in the stock markets rising higher, one class of mutual funds - arbitrage funds - is doing really well. In the past one year, the National Stock Exchange's (NSE) volatility index (VIX) is up 28%. Arbitrage funds have returned slightly over 9% in the same period. In comparison, the BSE Sensex returned around 8% and Nifty 5.5%. While the markets remained volatile for most part of the past year, in the past couple of months they have done well. The Sensex gained 19% from its year-low of 17905.91 on August 21, 2013. But volatility is on the rise, and going forward, volatility could remain at elevated levels due to big events such as the US taper and central government elections. Further, interest rates have also been rising, and that is giving rise to more arbitrage opportunities.

All the GEMs that figured in the March 2013 GEMGAZE have retained their esteemed position in the March 2014 GEMGAZE also.

UTI SPREAD Fund Gem

UTI SPREAD Fund is an eight-year old fund with an AUM of a paltry Rs 21 crore. Its one-year return of 7.87% is lower than its category average of 9.13% at present. 59% of the portfolio is in equities, with energy, finance, and healthcare being the top three sectors. The entire assets allocated to equity are in 13 stocks and 26.87% of the assets are in debt with 14% in cash. While the portfolio turnover ratio is a massive 870%, the expense ratio is very low at 1.03%, an icing on the cake, indeed. The fund is benchmarked against the CRISIL Liquid Fund index. The fund has been managed by Kaushik Basu since July 2011. 

HDFC Arbitrage Fund Gem

In its six-year old existence, HDFC Arbitrage Fund has been able to reach an AUM of a mere Rs 29 crore. This fund's trump card has been its resilience in a falling market. The one-year return of the fund is 8.4% as against the category average of 9.13%. The finance sector occupied the top slot with energy and FMCG in the second and third positions. Top 5 holdings constitute 31% of the portfolio with equities constituting 67% of the portfolio. The portfolio has 23 stocks and the portfolio turnover ratio is 70%. The expense ratio is as low as 0.96%. The fund is benchmarked against the CRISIL Liquid Fund Index and has been jointly managed by Mr. Anil Bamboli and Mr. Anand Laddha. Both have around 10 years of experience in research.

Kotak Equity Arbitrage Fund Gem

Incorporated in September 2005, Kotak Equity Arbitrage Fund has an AUM of Rs 484 crore. The one-year return of the fund is 9.25% as against the category average of 9.13%. The top three sectors are finance, healthcare, and technology. Top five holdings constitute 38% of the portfolio, with the equity exposure continuing to be nil and debt constituting 33% of the portfolio. The portfolio turnover ratio is 233% and the expense ratio is 0.92%. The fund is benchmarked against the CRISIL Liquid Fund Index with Abhishek Bisen and Deepak Gupta efficiently managing the fund.

 

JM Arbitrage Advantage Fund Gem

The Rs 61 crore JM Arbitrage Fund, incorporated in 2006, has earned a one-year return of 9.17% beating the category average return of 9.13%. Top five holdings constitute 45% of the portfolio with finance, FMCG, and healthcare forming the top three sectors. Equity constitutes 68% of the portfolio with 54% in mid and small cap stocks. There are 36 stocks in the portfolio. The portfolio turnover ratio is very high at 870%. The expense ratio is 0.84%. The fund is benchmarked against the CRISIL Liquid Fund Index. The fund is managed by Chaitanya Choksi since February 2011.

SBI Arbitrage Opportunities Fund Gem

SBI Arbitrage Opportunities Fund, incorporated in October 2006, has an AUM of Rs 109 crore. Its one-year return is 9.15%, a tad higher than the category average return of 9.13%. The top five holdings constitute 48% of the portfolio. FMCG, finance, and diversified are the top three sectors. 70% of the portfolio is made up of equity with 47% in large cap stocks. There are 25 stocks in the portfolio with a very high portfolio turnover ratio of 575%. The expense ratio is comparatively high at 1.28%. The fund is benchmarked against the CRISIL Liquid Fund Index. The fund is managed by Neeraj Kumar since October 2012.