Gem Gaze
(March 2009)
Positive Pangs…
(March 2009)
Positive Pangs…
The equity market in 2008 has given a lot of opportunities for arbitrage funds and they have been able to capitalise on that. In the last 12 months, the average returns from arbitrage funds have been around 8.8%. At the same time, the best performing diversified funds lost around 40%. Even in the last six months, arbitrage funds have helped investors garner some positive returns in the equity category.
The gleaming gems in this category in the past one year are parading in the decending order of glitter…
UTI Spread Fund Gem
The sensation of 2008, this fund delivered 2.98 and 1.96 per cent in the last two quarters, respectively. The one-year return was an impressive 9.71%. UTI SPrEAD has beaten its benchmark Crisil Liquid Fund Index as well as peers over a one and two-year period. Monthly rolling returns since inception also reflect superior performance over benchmark close to 90 per cent of the times. The assets as on 28 February, 2009 was Rs. 215.73 crores. In the last six months, this fund has decreased its equity holdings substantially to 60 per cent (from 72 per cent in December 2007). If it continues to maintain its current equity-debt allocation, it would lose its status as an equity fund and subsequently not be as tax efficient. An exemplary example of ture diversification, the top 5 sectors contribute to a mere 13% to the total assets, with the FMCG sector reigning high at 9%.UTI SPrEAD has the flexibility to move in to debt when the latter offers superior opportunities. The fund has used this mandate well to invest actively in short-term debt from the first quarter of 2008 and completely moved into debt in January 2009. Most of the instruments are short-term certificates of deposits and commercial paper which were perhaps entered at higher yields. However, with the yield curve now softening, the fund may find less attractive short-term instruments in the markets. This may lead to a shift towards equity arbitrage once again in the upcoming months.
HDFC Arbitrage Fund Gem
Launched in October 2007, the net assets stand at Rs. 99 crores (Retail Plan) and 173 crores (Wholesale Plan). Benchmarked against the Crisil Liquid Index, the one-year return of the fund (Retail Plan) surpasses the category average of 7.25% by 0.4%. This is a better performance vis-a-vis its peers considering the fact that it has been in existence for only a year. The performance of the Wholesale Plan is a tad better at 7.87%. At 14%, the top position is occupied by the financial sector with the top five sectors sharing a generous 42%, indicating a high level of concentration.
ICICI Prudential Blended Plan Gem
With net assets of Rs. 90.89 crores on 28 February, 2009 the one-year return of the fund was 7.69% as against the category average of 7.25%. It is benchmarked against the Crisil ST Bond Index. 46% of the funds are allocated to the banking sector with 9.51% being accounted for by the shares of Oriental Bank of Commerce alone. 68% of the total funds went into equities with the rest being allocated to the money markets.
JM Arbitrage Advantage Gem
The fund has been a solid performer delivering above average return – its one-year return was 7.57% as against the category average of 7.25%. This fund is betting big on the construction sector and has allocated around 8 per cent of its holdings to it. This may be due to the increased volatility in this sector in recent months (increased volatility creates more arbitrage opportunities). A major concern is that its expenses are growing, an indication that the fund probably trades very heavily. While trading generates returns, the downside is that growing expenses eat into returns. With net assets of Rs. 273.60 crores as on 28 February, 2009, the fund is benchmarked against the Crisil Liquid Index. Nearly 19% of the funds were allocated to the financial sector with 14% invested in J and K Bank alone. The fund is moderately diversified with the top 5 sectors accounting for 21.5% of the total holdings.71% of the funds have been invested in equities with the rest in debt.
Kotak Equity Arbitrage Fund Gem
2008 has been a not so good year for this topper of the previous year. It fell from the top position with a return of 9% to a low of 7.1% this year. This can be attributed to the high allocation to cash of 67%. Its asset size also halved to Rs. 183.69 crore as on 27 February, 2009. It is benchmarked against the Crisil Liquid Index. But two factors stand out in favour of this fund. It has been a consistent player in this category and its expenses have always been on the lower side. By and large, the fund's return has rarely deviated from the category average.
Religare Arbitrage Fund
Launched in April 2007, the size of the fund is Rs. 68.02 crores on 30 January, 2009. The one-year return of the fund is 6.9% but the Expense Ratio is excessive at 1.25% with the portfolio turnover ratio a whopping 709%. The top 5 sectors account for 20% with finance sector topping at 14%. 66% has been allocated to equity with 17% each having been allocated to debt and cash respectively.
SBI Arbitrage Opportunities Fund
With its one-year return of a mere 6.7%, it falls well below the category average. Its assets have halved in the past one year to Rs. 360.04 crores as on 27 February, 2009. The top holding of the fund is in the banking and finance sector at 12.53% and the top 5 sectors account for 34 % of the holdings. 67% of the funds are allocated to equity with 33% of the funds held in cash.
Benchmark Derivative Fund
With one of the lowest one-year return of 6.56%, the low net assets of Rs. 16.5 crores as on 28 February, 2009 speak for itself. The fund is concentrated with 45% invested in the top 5 sectors. Financial sector occupies the top slot at 21%. Allocation to equity stands at 67%.
IDFC Arbitrage Fund
Launched in November 2007, the assets of the fund amounted to Rs. 126.28 crores on 28 February, 2009. The one-year return is the lowest at 6.21%. 42% of the assets are accounted for by the top 5 sectors with financial sector occupying the top slot at 11%. The Expense ratio is 0.65 % and the Portfolio Turnover Ratio is 66%.
Vitality in Volatility
The gleaming gems in this category in the past one year are parading in the decending order of glitter…
UTI Spread Fund Gem
The sensation of 2008, this fund delivered 2.98 and 1.96 per cent in the last two quarters, respectively. The one-year return was an impressive 9.71%. UTI SPrEAD has beaten its benchmark Crisil Liquid Fund Index as well as peers over a one and two-year period. Monthly rolling returns since inception also reflect superior performance over benchmark close to 90 per cent of the times. The assets as on 28 February, 2009 was Rs. 215.73 crores. In the last six months, this fund has decreased its equity holdings substantially to 60 per cent (from 72 per cent in December 2007). If it continues to maintain its current equity-debt allocation, it would lose its status as an equity fund and subsequently not be as tax efficient. An exemplary example of ture diversification, the top 5 sectors contribute to a mere 13% to the total assets, with the FMCG sector reigning high at 9%.UTI SPrEAD has the flexibility to move in to debt when the latter offers superior opportunities. The fund has used this mandate well to invest actively in short-term debt from the first quarter of 2008 and completely moved into debt in January 2009. Most of the instruments are short-term certificates of deposits and commercial paper which were perhaps entered at higher yields. However, with the yield curve now softening, the fund may find less attractive short-term instruments in the markets. This may lead to a shift towards equity arbitrage once again in the upcoming months.
HDFC Arbitrage Fund Gem
Launched in October 2007, the net assets stand at Rs. 99 crores (Retail Plan) and 173 crores (Wholesale Plan). Benchmarked against the Crisil Liquid Index, the one-year return of the fund (Retail Plan) surpasses the category average of 7.25% by 0.4%. This is a better performance vis-a-vis its peers considering the fact that it has been in existence for only a year. The performance of the Wholesale Plan is a tad better at 7.87%. At 14%, the top position is occupied by the financial sector with the top five sectors sharing a generous 42%, indicating a high level of concentration.
ICICI Prudential Blended Plan Gem
With net assets of Rs. 90.89 crores on 28 February, 2009 the one-year return of the fund was 7.69% as against the category average of 7.25%. It is benchmarked against the Crisil ST Bond Index. 46% of the funds are allocated to the banking sector with 9.51% being accounted for by the shares of Oriental Bank of Commerce alone. 68% of the total funds went into equities with the rest being allocated to the money markets.
JM Arbitrage Advantage Gem
The fund has been a solid performer delivering above average return – its one-year return was 7.57% as against the category average of 7.25%. This fund is betting big on the construction sector and has allocated around 8 per cent of its holdings to it. This may be due to the increased volatility in this sector in recent months (increased volatility creates more arbitrage opportunities). A major concern is that its expenses are growing, an indication that the fund probably trades very heavily. While trading generates returns, the downside is that growing expenses eat into returns. With net assets of Rs. 273.60 crores as on 28 February, 2009, the fund is benchmarked against the Crisil Liquid Index. Nearly 19% of the funds were allocated to the financial sector with 14% invested in J and K Bank alone. The fund is moderately diversified with the top 5 sectors accounting for 21.5% of the total holdings.71% of the funds have been invested in equities with the rest in debt.
Kotak Equity Arbitrage Fund Gem
2008 has been a not so good year for this topper of the previous year. It fell from the top position with a return of 9% to a low of 7.1% this year. This can be attributed to the high allocation to cash of 67%. Its asset size also halved to Rs. 183.69 crore as on 27 February, 2009. It is benchmarked against the Crisil Liquid Index. But two factors stand out in favour of this fund. It has been a consistent player in this category and its expenses have always been on the lower side. By and large, the fund's return has rarely deviated from the category average.
Religare Arbitrage Fund
Launched in April 2007, the size of the fund is Rs. 68.02 crores on 30 January, 2009. The one-year return of the fund is 6.9% but the Expense Ratio is excessive at 1.25% with the portfolio turnover ratio a whopping 709%. The top 5 sectors account for 20% with finance sector topping at 14%. 66% has been allocated to equity with 17% each having been allocated to debt and cash respectively.
SBI Arbitrage Opportunities Fund
With its one-year return of a mere 6.7%, it falls well below the category average. Its assets have halved in the past one year to Rs. 360.04 crores as on 27 February, 2009. The top holding of the fund is in the banking and finance sector at 12.53% and the top 5 sectors account for 34 % of the holdings. 67% of the funds are allocated to equity with 33% of the funds held in cash.
Benchmark Derivative Fund
With one of the lowest one-year return of 6.56%, the low net assets of Rs. 16.5 crores as on 28 February, 2009 speak for itself. The fund is concentrated with 45% invested in the top 5 sectors. Financial sector occupies the top slot at 21%. Allocation to equity stands at 67%.
IDFC Arbitrage Fund
Launched in November 2007, the assets of the fund amounted to Rs. 126.28 crores on 28 February, 2009. The one-year return is the lowest at 6.21%. 42% of the assets are accounted for by the top 5 sectors with financial sector occupying the top slot at 11%. The Expense ratio is 0.65 % and the Portfolio Turnover Ratio is 66%.
Vitality in Volatility
One can invest in arbitrage funds in times of volatility. The performance of arbitrage funds are based more on market volatility than its direction. The higher the volatility, higher the arbitrage opportunity. If the market continues to remain volatile at either lower or higher levels, arbitrage funds will continue to generating good returns.
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