GEMGAZE

March 2016

Arbitrage funds leveraging the derivatives market

In an increasingly volatile market, investors try to reduce their exposure to market risk by hedging in the derivatives market. Mutual fund investors can exploit the arbitrage opportunities with lower costs than stock market investors.

All the GEMs that figured in the March 2015 GEMGAZE have retained their esteemed position in the March 2016 GEMGAZE too.

Kotak Equity Arbitrage Fund Gem

Incorporated in September 2005, Kotak Equity Arbitrage Fund has an AUM of Rs 4,278 crore. The one-year return of the fund is 7.28% as against the category average of 7.43%. The top three sectors are finance, energy, and FMCG. Top five holdings constitute 24% of the portfolio, with the equity exposure at 66% and debt constituting 25% of the portfolio. The portfolio turnover ratio is 190% and the expense ratio is 0.89%. The fund is benchmarked against the CRISIL Liquid Fund Index with Mr. Deepak Gupta efficiently managing the fund.

JM Arbitrage Advantage Fund Gem

The Rs 2538 crore JM Arbitrage Advantage Fund, incorporated in 2006, has earned a one-year return of 6.97% modestly trailing the category average return of 7.43%. Top five holdings constitute 37% of the portfolio with finance, energy, and FMCG forming the top three sectors. Equity constitutes 66% of the portfolio with 36% in debt. The portfolio turnover ratio is very high at 243%. The expense ratio is 0.79%. The fund is benchmarked against the CRISIL Liquid Fund Index. The fund is managed by Chaitanya Choksi since February 2011 and Asit Bhandarkar and Sanjay Kumar Chhabaria since July 2014.

SBI Arbitrage Opportunities Fund Gem

SBI Arbitrage Opportunities Fund, incorporated in October 2006, has an AUM of Rs 1348 crore. Its one-year return is 6.82%, a tad higher than the category average return of 7.43%. The top five holdings constitute 30% of the portfolio. Finance, energy, and healthcare are the top three sectors. 67% of the portfolio is made up of equity with 33% in debt. The portfolio turnover ratio of the fund is very high at 442%. The expense ratio is comparatively high at 1.10%. The fund is benchmarked against the CRISIL Liquid Fund Index. The fund is managed by Neeraj Kumar since October 2012.

IDFC Arbitrage Fund Gem

IDFC Arbitrage Fund is an eight-year old fund with an AUM of Rs 2862 crore. Its one-year return of 7.02 % is a tad lower than its category average of 7.43% at present. The fund is amongst the more consistent players in terms of beating the CRISIL Liquid fund Index over 70% of the times on a rolling – return basis. Top five holdings constitute 26% of the portfolio, with finance, healthcare, and auto being the top three sectors. The entire assets allocated to equity are 66% and 25% of the assets are in debt. While the portfolio turnover ratio is a massive 1932%, the expense ratio is very low at 1%, an icing on the cake, indeed. The fund has been managed by Yogik Pitti since June 2013 and Meenakshi Dawar since September 2015. 

ICICI Prudential Equity Arbitrage Fund Gem

Incorporated in December 2006, ICICI Prudential Equity Arbitrage Fund has an AUM of Rs 3583 crore. The one-year return of the fund is 6.81% slightly trailing the category average of 7.22%. The top three sectors are finance, healthcare, and technology. Top five holdings constitute 21% of the portfolio, with the equity exposure at 68% and debt constituting 29% of the portfolio. The portfolio turnover ratio is 71% and the expense ratio is 0.87%. The fund is benchmarked against the CRISIL Liquid Fund Index with Mr. Manish Banthia and Mr. Kayzad Eghlim efficiently managing the fund since November 2009 and February 2011 respectively.