Five equity-diversified funds beat the indices significantly.
Economic meltdown, businesses incurring losses, crumbling capital markets ... 2008 has had more than its fair share of sorrowful financial stories. As on December 2, 2008, the Sensex has shed more than half of the points it had on January 21, 2008. The fate of the BSE Mid-Cap and the BSE Small -Cap is even worse, having lost 64.41 per cent and 70.19 per cent respectively.
No wonder, all equity funds are down and many are almost out. Seven of them have even lost more than the worst-hit BSE Small-Cap Index. Five out of these seven are JM funds, with JM Emerging Leaders at the bottom of the ladder, down by 78.79 per cent.
However, instead of looking at who has lost, let’s look at the ones who managed to survive the onslaught. The five funds that occupy the top of the ladder are UTI Dividend Yield, Birla Sun Life Dividend Yield Plus, UTI Contra, Sahara Growth and DSP BR Top 100 Equity Regular.These funds have managed to rein in their losses much better than their peers, having shed between 36.24 per cent (UTI Dividend Yield) and 39.05 per cent (DSPBR Top 100 Equity Regular). Let’s see what they did differently.
UTI Dividend Yield: This fund has put to rest the notion that dividend-yield funds shine only in market downturns. In the fall between January and October, its decline was the least. Even in the last two years, it was among the best performers.
Fund manager Swati Kulkarni has no qualms about rapidly moving in and out of sectors and boldly rides her bets. Whether it was to raise the energy allocation aggressively over 2007 or increase the metal allocation over the last few months, it all paid off. Financial services moved from almost 17 per cent down to 8 per cent, but have started inching upwards again.
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It’s not just sector bets. Some of her mid-cap stocks too held her in good stead. She bought NIIT Technologies in May 2006, ahead of her peers (with the exception of ING Dividend Yield). Even her timing with Balrampur Chini Mills, Greaves Cotton and Cummins India proved lucrative.
But what can be seen right now is more of a tilt towards conservatism. The equity allocation has reduced to around 68 per cent, the balance being in debt and cash. Energy is still the most preferred sector with an allocation of 18 per cent.
The fund has proved to be quite nimble and tends to quickly adapt to the environment. Overall, it is a clear winner in its category.
Birla Sun Life Dividend Yield Plus: This fund is getting noticed, of late, simply because it has shown tremendous resilience during this fall.
It is surprising when one considers a mid- and small-cap allocation in the range of 77-86 per cent over the past nine months. One reason could be its increased allocation to cash and debt, which historically the fund has not resorted to. Between April and June 2008, the cash allocation averaged almost 15 per cent.
For long, this fund has been a middle-of-the-road performer. In December 2007, for instance, energy and financial services cornered around 37 per cent of the portfolio on the identical lines as the top performer that year -- Tata Dividend Yield. Yet, this fund faltered on performance. Birla played it too safe with no stock exceeding 4.40 per cent, while Tata Dividend Yield had six stocks exceeding that exposure. So when Neyveli Lignite Corporation delivered 350 per cent that year, Tata benefited with a 6 per cent exposure, while Birla with 3.82 per cent. The fund sports a broad and well-diversified portfolio of 53 stocks, the highest in the category.
It will not disappoint investors who are willing to compromise mind-boggling returns in exchange for a good night’s sleep.
UTI Contra: From the look at UTI Contra’s portfolio, there seems to be nothing contrarian about it, but the fund’s objective states that it will "focus on stocks that are currently undervalued because of emotional and behavioural patterns present in the stock market".
Take a look at the fund’s returns. The fund has never been able to beat the category or its benchmark, BSE 200, in terms of returns. In 2007, the fund’s returns stood at 41 per cent compared with the category’s 60 per cent.
In the past one year, the fund has shed only 46.37 per cent, while during the same time, its category has shed 58.03 per cent and the Sensex has been down by 54.50 per cent. In fact, in the list of funds that have lost the least since January 21, 2008, UTI Contra stands proudly in the third position.
The fund has managed to rein in the losses, thanks to some calculated bets in specific companies and sectors. The top five sectors that the fund is invested in are technology (18.8 per cent), financial services (17.33 per cent), energy (12.1 per cent), consumer non-durables (10.63 per cent) and basic engineering (8.42 per cent), as on October 31, 2008. The fund maintains a large-cap portfolio, accounting for around 65 per cent of its holdings.
The current fund manager, Sanjay Dongre, is managing the fund since November 2006. Dongre is credited with managing the UTI Infrastructure Fund, which was the number-one fund in 2006. His moves seemed to have worked on UTI Contra as well in successfully protecting the downside for the fund’s investors. It’s now worth seeing if the fund can prove itself in a bullish market as well by beating its category.
| TOP SURVIVORS | |||
| Fund / Index | 21/01/08 NAV | 2/12/2008 NAV | % Change |
| UTI Dividend Yield | 21.55 | 13.74 | -36.24 |
| Birla Sun Life | 52.97 | 33.74 | -36.30 |
| UTI Contra | 11.62 | 7.15 | -38.47 |
| Sahara Growth | 69.35 | 42.44 | -38.81 |
| DSPBR Top 100 Equity Reg | 79.17 | 48.26 | -39.05 |
| Closing points | Closing points | ||
| BSE 100 | 9,443.13 | 4,443.50 | -52.94 |
| BSE 200 | 2234.49 | 1,027.59 | -54.01 |
| BSE 500 | 7,195.23 | 3,190.30 | -55.66 |
| BSE Sensex | 17605.35 | 8739.24 | -50.36 |
| BSE Small Cap | 10911.66 | 3252.41 | -70.19 |
| BSE Mid Cap | 7881.99 | 2805.33 | -64.41 |
Sahara Growth: This fund is quite a respectable offering. In its entire history, it has managed to beat its benchmark every single year. But peers performed better. Finally in 2006, thanks to smart sector bets, it put its best foot forward. In the past five quarters, it has managed to stay ahead of the category average.
Its small size and name would imply a portfolio laden with mid-caps. In reality, nothing could be more misleading. This fund has displayed a penchant for large-caps and rarely has the allocation to this market cap gone below 50 per cent and never below 45 per cent.
At the same time, it would be wrong to infer that the fund manager plays it safe. He maintains a fairly concentrated portfolio of around 30 stocks. But he aggressively churns this tight portfolio. Simply put, Sahara Growth doesn’t exactly shine, but the light it sheds does generate warmth.
DSPBR Top 100 Equity: From being a very average performer in 2004 and 2005, the fund began to impress in 2006. While it could be coincidental that large-caps turned around that year, the fund continued on a sound footing even in 2007. And in 2008, it deftly managed to curtail its losses. This was done partly by the increased cash allocation and partly by exposure to healthcare and consumer non-durables. Worth mentioning is also an average 15 per cent exposure to derivatives, which at one time touched 21 per cent in 2008. This large-cap, liquid portfolio is a good core holding. Moreover, the fund is amply diversified with around 40 stocks. But investors should buy this fund for consistency and stability rather than top-notch returns.
Value Research