Believing in the virtues of diversification

FUND ANALYSIS: Sundaram BNP Select

When this fund was launched in July 2002, the timing was totally in its favour.

While in the initial few months, there was nothing to impress its investors with, once the tide turned in favour of mid-caps in 2003, the fund began to shine.

It ended 2003 as the third best equity fund with returns of 157.73 per cent. In next two years, it generated top quartile returns with a ranking of 12.

As a result, its popularity has grown tremendously among investors and assets have grown exponentially over the last few months. From less than Rs 500 crore at the start of 2006, they are now over Rs 1,800 crore.

The fund has always believed in the virtues of diversification. However in recent times, it has turned into an obsession - the fund spread its portfolio over 70 to 80 stocks through 2005.

The last portfolio revealed around 112 stocks. Diversification is apt for a mid-cap fund since mid-caps are basically illiquid stocks. However, if the fund does hit upon a few multi-baggers the effect will not be felt in the rest of the portfolio since the holding would be minimal.

Technology and construction sectors dominate its portfolios. The fund manager has displayed skills to identify winners. For example, it was the first fund to spot the opportunity in IVRCL Infrastructures & Projects at the start of 2004.

The fund doesn't believe in buy-and-hold strategy much, as stocks keeps on coming and going out frequently. However, few stocks that the fund has held for the long-term have been multi-baggers.