The fund has a very consistent record. The last one-, three-, five- and 10-year CAGR returns are 27 per cent, 53 per cent, 23 per cent and 21 per cent respectively as on December 2004.
The corresponding returns for the S&P CNX 500 are 18 per cent, 37 per cent, 8 per cent and 6 per cent CAGR. Further, the fund has beaten the Sensex in each of the last eight consecutive calendar years.
The primary reason for the above performance is a consistent investment strategy of buying good quality companies with above-average growth potential at reasonable valuations.
Further, the fund has managed risk effectively by always remaining diversified by discipline. A bias towards large-cap stocks has also enabled the fund to withstand downturns in the market in a reasonable manner.
However, the strategy of predominantly investing in large-caps has hurt the fund's performance somewhat in 2004. In calendar 2004 there was a big gap in the performance of large-cap and mid-cap indices. The Sensex was up 13 per cent whereas the CNX Mid-cap 200 was up 40 per cent.
With the gap in valuations between large- and mid-caps being low presently, the gap between returns from large-caps and mid-caps is not expected to be as significant in future. Large-cap and mid-cap indices keep on outperforming each other over time.
This is one more reason why performance of equity funds should be evaluated not over six-month or one-year period but over three years and longer periods, so as to cover market cycles better.
What is your prognosis for the stock markets?
The market multiples based on estimated FY05-06 earnings are very reasonable and below the long-term average. Based on this, the market is attractively valued with a medium- to long-term perspective.
