GEMGAZE

September 2014

As the equity markets are poised for new peaks in 2014, reaching the zenith of glory has been a cakewalk for the five GEMs under the diversified equity funds category, which have barely managed to walk the tight rope in 2013. No wonder, all the five GEMs of the 2013 GEMGAZE have qualified yet again for the 2014 GEMGAZE.

HDFC Equity Fund Gem

The largest fund from the HDFC stable with assets in excess of Rs 12,500 crore, the two decade old HDFC Equity tops the performance chart over one-, three- and five-year time frames. If steady income from investment is the need, HDFC Equity fits the bill. The fund has been paying dividend every year since 2002. Prashant Jain has been managing the fund since the erstwhile Zurich Mutual Fund’s equity fund was merged with HDFC in June 2003. Fund manager stability is yet another strong point for the fund. HDFC Equity has outperformed its benchmark CNX 500 index during rallies by huge margins. For instance, during the March 2009-November 2010 period, the fund’s NAV jumped about 3.5 times even as the benchmark rose 2.5 times. The one-year return of the fund is 79.14% as against the category average of 57.78%. The fund’s one-year return has been higher than the CNX 500 Index nearly 68% of the time in the last five years. The top three sectors of the fund are finance, energy, and technology. The fund held 56 stocks in its portfolio as of June 2014. The fund is adequately diversified with 31.2% of assets in the top 5 stocks. The fund’s expense ratio of 2.17% is much lower than the average of other funds in the large cap category. The portfolio turnover of this predominantly large cap fund, with 64% of the assets in large caps, is a mere 37%. HDFC Equity is one fund which not only cushions your portfolio during market falls but also generates healthy returns over the long term.

Sundaram Select Midcap Fund Gem 

In the last couple of years, the S&P BSE Mid-cap Index has witnessed quite a bit of volatility resulting in redemption pressures in Sundaram Select Midcap Fund, with its average assets under management dwindling by 22% to Rs 1,963 crore. However, the fund has outperformed its benchmark, S&P BSE Mid-Cap Index consistently. It has delivered a return of 95.08% (BSE mid-cap — 78.38%) and 24.18% (BSE mid-cap — 14.99%) over one and three years. It has gained 20.02%, compounded annually over the last five years, placing it in the top quartile of mid-cap funds. It currently has 57 stocks in the portfolio spread across 23 sectors. Currently, the fund’s top three sector holdings are financial services, engineering, and automobile. These three sectors constitute 46% of the portfolio. The top five stocks constitute 24.86% of the portfolio. The expense ratio of the fund is on the higher side at 2.29% while the portfolio turnover is a measly 11%. Krishna Kumar took over the reins of this fund after former fund manager Satish Ramnathan’s exit in December 2012. His investment style entails investing in fundamentally sound stocks with good growth prospects, good pricing power, and stable cash flow. Krishna Kumar is valuation conscious while investing in stocks but is willing to stay invested in companies with higher valuations in which the longer-term growth prospects appear favourable. For risk-tolerant investors who can ride out short-term volatility, the investment process can deliver pleasing results.

ICICI Prudential Dynamic Fund Gem

The Rs 4254 crore ICICI Prudential Dynamic Fund shuffles its equity, debt, and cash allocations with panache, making it a safe bet in any market situation. It also has a proven track record of delivering steady returns. ICICI Prudential Dynamic has convincingly outpaced its benchmark, the Nifty, over one-, three- and five-year timeframes. The fund’s mandate allows it to straddle large-, mid- and small-cap stocks. But Prudential Dynamic plays it safe, having a large-cap tilt to its portfolio across market cycles with 75% of the assets in large cap stocks currently. The fund betters the benchmark by a good margin during rallies. It adopts a rather defensive approach during times of volatility, holding cash off and on, or choosing to invest in debt instruments. This approach also helps the fund to minimise losses extremely well during market dips. Redeployment of cash during rallies has also been fairly swift. Although its approach is defensive, over the long term, it has been a top-notch performer deftly deploying idle cash, capitalising on attractive debt instruments and entering or booking profits in stocks at the right time. The fund’s strategy has worked well over the long term. The fund managed a good 27% annual return since its launch in October 2002, way ahead of the 14.4% return of its benchmark S&P Nifty. In the last five years, when the markets witnessed quite a bit of volatility, the fund has managed to beat its benchmark 87% of the time. Its top bets have been on proven large-cap names, which lend it a fair degree of stability. Despite going heavy on debt or cash to the tune of 15-18% of its portfolio, the fund has rarely lost out on any prolonged rallies. The fund has outperformed both the benchmark and the category (represented by CRISIL-AMFI Diversified Equity Fund Index) across multiple timeframes — one, three, five, seven, and 10 years. Over the longer time frame of 10 years, the fund gave an annualised return of 24.99% vis-à-vis 17.32% and 20.09% by the benchmark and category, respectively. The one year return of the fund is 55.17% as against the category average of 57.78%. The fund has maintained an average 85% exposure to equity over the past three years, with an average equity derivative exposure of five per cent. At the sectoral level, overweight exposure to software and pharmaceuticals compared with the benchmark has helped the fund. The top three sectors are finance, energy, and technology. There are 48 stocks in the portfolio with 34.9% of the assets in the top five stocks. While the expense ratio of the fund is 2.23%, the portfolio turnover ratio is 105%.

DSP Blackrock Equity Fund Gem

The Rs 2004 crore DSPBR Equity Fund, which has been in existence for more than 17 years, has outperformed its benchmark, the CNX 500, over one-, three- and five-year timeframes. Over the last five years, it has delivered compounded annual returns of 15.2%, which is better than several peers in the category. The fund has given good returns in market rallies and also limited the downsides during market declines. Over long periods, the blend of large- and mid-caps tends to deliver category-beating returns. It has delivered compounded annual returns of nearly 25% over the past 10 years, which is among the best in its category. DSPBR Equity invests predominantly in large-cap stocks while mid-cap exposure is to the tune of nearly 50% of its portfolio. It seeks to reduce the risk profile significantly by taking low exposure to individual stocks, to the tune of only around 3.5% of its portfolio. While the focus on large-cap stocks protects the fund in volatile markets, the mid-cap portion ensures a fair degree of outperformance for it. The fund’s key exposures have been to the banking, software, and energy sectors across timelines. While the expense ratio of the fund is 2.34%, the portfolio turnover ratio is 83%. Few managers are adept at investing in stocks across market segments but Apoorva Shah easily makes the cut. He uses his skills to good effect by running a multi-cap strategy that works across market cycles and over the long haul. The fund ranks among the best in its peer group and it can hold long-term investors in good stead.

Birla Sunlife Frontline Equity Fund Gem

The Rs 5039 crore Birla Sun Life Frontline Equity Fund is one fund which will not only cushion your portfolio during turbulent times but also deliver healthy returns over a three- to five-year timeframe. The fund has managed to sustain healthy top-quartile returns over three-, and five-year timeframes. It has bettered its benchmark, the BSE 200 Index, and its category average across one-, three- and five-year time periods. The fund also scores high on consistency. In the last five years, the fund’s one-year returns have been higher than the benchmark almost 96% of the time. The one, three, and five-year returns of the fund are 56.28%, 22.44%, and 16.25% as against the category average of 57.84%, 19.49%, and 14.02% respectively. It has not only outperformed the BSE 200 Index during bull phases but has also been successful in containing downsides during corrective phases. 82% of the assets are invested in large cap stocks. Finance, technology, and automobile constitute the top three sectors. The fund currently holds 70 stocks in its portfolio; this reduces concentration risk. The top five stocks constitute 20.46% of the portfolio. The fund’s expense ratio of 2.17% is much lower than that of its peer funds. The portfolio turnover of 45% can be justified since swift sector moves during volatile times helped the fund stay ahead of competition.