 "Superior stock selection resulting in higher returns")
L&T India Special Situations Fund, erstwhile Fidelity India Special Situations Fund, was launched in May 2006. In November 2012, the scheme was migrated to L&T Mutual Fund and since then it is managed by Soumendra Nath Lahiri. According to the CRISIL Mutual Fund Ranking for the quarter ended June, the fund has CRISIL Fund Rank 2 (good performance). It has been ranked within the top-30 percentile (Fund Rank 1 or Fund Rank 2) of the CRISIL Mutual Fund Ranking for the past six quarters under the diversified equity fund category. The quarterly average asset under management (AUM) of the fund stood at Rs 587 crore as of June.
The fund aims to create long-term value through a diversified portfolio built around stocks in "special situations", which could present interesting stock-picking opportunities. These could include corporate actions, undervalued stocks, new business streams, etc. "Special situation" could be either in terms of stock price or the business of the underlying company. Thus, the investment approach is bottom-up stock picking.
Performance
The fund has outperformed both its benchmark (S&P BSE 200) and the category as represented by CRISIL-Amfi Diversified Equity Fund Performance Index, across various time frames. Over the past five years, the fund has given annualised return of 8.88 per cent compared to 4.76 per cent and 6.48 per cent by its benchmark and the category, respectively.
An investment of Rs 1,000 since inception (May 22, 2006) of the fund would have appreciated to Rs 1,986 at an annualised growth rate of 9.94 per cent until August 14, 2013. The same amount invested in the benchmark and CRISIL-Amfi Diversified Equity Fund Performance Index (category) would have returned Rs 1,774 (8.24 per cent) and Rs 1,870 (9.03 per cent), respectively.
The fund's performance is also associated with higher returns while maintaining lower volatility. The fund's volatility of 16.52 per cent is less compared to the benchmark (20.25 per cent) and the category (18.30 per cent) over a three-year period.
The fund invests in stocks across market capitalisation and sectors, without any investment style bias. It has been close to fully invested with an average equity exposure of 96 per cent over the past three years ended July. As on July, 65 per cent of its equity exposure is in large-cap stocks and 35 per cent in small and mid-cap stocks.
The fund is well diversified at the stock level and slightly concentrated at the sector level compared to the category. Over the past three years, the fund invested in 76 stocks on an average when compared to the category's 46, while the fund's exposure to the top five industries is 60 per cent vis-a-vis the category's 57 per cent.
The strong performance over the years can be mainly attributed to superior stock selection. Some of the key contributors to the performance include stocks such as FAG Bearings India, ING Vysya Bank, Amara Raja Batteries, Idea Cellular and United Spirits, which have helped the fund generate higher returns over the past three years.
The fund was overweight on finance by eight per cent over the benchmark and nine per cent over the category; however, it has reduced exposure from 15 per cent to 10 per cent in finance in the past one year. The fund was overweight on software and automobile ancillaries by almost two per cent over the benchmark and the category over a three-year period ended July. These categories, represented by the CNX Finance Index, CNX IT Sector Index and CNX Auto Index, gave 1.02 per cent, 8.54 per cent and 8.36 per cent annualised returns, respectively, compared to the benchmark's -0.16 per cent. Also, underexposure to underperforming sectors such as industrial capital goods (S&P BSE Capital Goods returned -17.36 per cent) and power (S&P BSE Power gave -21.62 per cent) helped the fund's performance.
Market phase analysis
The performance during the market downturn and upturn is testimony to its bottom-up stock picking approach. When the markets started to recover from April 2009 until December 2010, the fund gained 68 per cent (annualised return) as compared to the benchmark's 56 per cent return.
Also, when the markets started to decline due to the European crisis from January 2011 until July 2013, the fund managed marginal positive annualised return of 0.1 per cent, whereas the benchmark fell by four per cent. Thus, the fund has displayed both, resilience in a bear phase and the ability to deliver superior returns in a bull run.
The fund aims to create long-term value through a diversified portfolio built around stocks in "special situations", which could present interesting stock-picking opportunities. These could include corporate actions, undervalued stocks, new business streams, etc. "Special situation" could be either in terms of stock price or the business of the underlying company. Thus, the investment approach is bottom-up stock picking.
Performance
The fund has outperformed both its benchmark (S&P BSE 200) and the category as represented by CRISIL-Amfi Diversified Equity Fund Performance Index, across various time frames. Over the past five years, the fund has given annualised return of 8.88 per cent compared to 4.76 per cent and 6.48 per cent by its benchmark and the category, respectively.
An investment of Rs 1,000 since inception (May 22, 2006) of the fund would have appreciated to Rs 1,986 at an annualised growth rate of 9.94 per cent until August 14, 2013. The same amount invested in the benchmark and CRISIL-Amfi Diversified Equity Fund Performance Index (category) would have returned Rs 1,774 (8.24 per cent) and Rs 1,870 (9.03 per cent), respectively.
The fund's performance is also associated with higher returns while maintaining lower volatility. The fund's volatility of 16.52 per cent is less compared to the benchmark (20.25 per cent) and the category (18.30 per cent) over a three-year period.
The fund invests in stocks across market capitalisation and sectors, without any investment style bias. It has been close to fully invested with an average equity exposure of 96 per cent over the past three years ended July. As on July, 65 per cent of its equity exposure is in large-cap stocks and 35 per cent in small and mid-cap stocks.
The fund is well diversified at the stock level and slightly concentrated at the sector level compared to the category. Over the past three years, the fund invested in 76 stocks on an average when compared to the category's 46, while the fund's exposure to the top five industries is 60 per cent vis-a-vis the category's 57 per cent.
The strong performance over the years can be mainly attributed to superior stock selection. Some of the key contributors to the performance include stocks such as FAG Bearings India, ING Vysya Bank, Amara Raja Batteries, Idea Cellular and United Spirits, which have helped the fund generate higher returns over the past three years.
The fund was overweight on finance by eight per cent over the benchmark and nine per cent over the category; however, it has reduced exposure from 15 per cent to 10 per cent in finance in the past one year. The fund was overweight on software and automobile ancillaries by almost two per cent over the benchmark and the category over a three-year period ended July. These categories, represented by the CNX Finance Index, CNX IT Sector Index and CNX Auto Index, gave 1.02 per cent, 8.54 per cent and 8.36 per cent annualised returns, respectively, compared to the benchmark's -0.16 per cent. Also, underexposure to underperforming sectors such as industrial capital goods (S&P BSE Capital Goods returned -17.36 per cent) and power (S&P BSE Power gave -21.62 per cent) helped the fund's performance.
Market phase analysis
The performance during the market downturn and upturn is testimony to its bottom-up stock picking approach. When the markets started to recover from April 2009 until December 2010, the fund gained 68 per cent (annualised return) as compared to the benchmark's 56 per cent return.
Also, when the markets started to decline due to the European crisis from January 2011 until July 2013, the fund managed marginal positive annualised return of 0.1 per cent, whereas the benchmark fell by four per cent. Thus, the fund has displayed both, resilience in a bear phase and the ability to deliver superior returns in a bull run.
CRISIL Research