RELIANCE BANKING
It's a compelling choice if investors stay in for a long haul. The very first banking sector fund, it debuted with a bang. Its return in 2004 put it way ahead of both the BSE and CNX Bank indices. The fund stood vindicated when it raced ahead in 2007 and fell the least in 2008.
The fund has a keen preference for public sector banks simply because the fund manager believes there has been a lot of transformation in that space. “Valuations in the Indian banking sector, especially public sector banks, are low compared to the returns they make and the profits they generate. When other sectors are trading at 20-25x price-to-earnings ratio (PE), Indian banks mostly trade at 6-8x PE, with price-to-book ratio (PB) between 1-1.5x and return on equity (RoE) of over 15 per cent," says fund manager Sunil Singhania.
Like other sector funds in Reliance’s stable, this one, too, has the flexibility to go 100 per cent into any of the three asset classes: equity, debt or cash. Between September 2008 and February 2009, the cash allocation averaged at around 18.51 per cent. The fund dynamically oscillates between large and mid caps, as well as between private and public sector banks. It also dabbles in derivatives.
| Reliance Banking | |
|
Period | Returns (%) |
| 1-month | -5.89 |
| 3-month | 3.78 |
| 6-month | 22.78 |
| 1-year | 76.14 |
| 3-year | 25.84 |
This fund may get temporarily hit due to certain calls, but over the long run, it meets its goal.
SAHARA BANKING AND FINANCIAL SERVICES
This fund debuted just before the October 2008 credit crisis. On the face of it, the timing could not have been worse. But, in retrospect, it could not have been better.
Once the fund was launched, regulations permitted the fund manager a time lag of six months to deploy the cash. So, right in the middle of the turmoil (September 2008-February 2009), the fund benefited with an average cash holding of around 86 per cent. Naturally, this helped the fund avoid huge losses its peers incurred.
In the quarter-ended December 2008, it delivered 4.73 per cent (category average: minus 10.67 per cent). The very next quarter, it lost just 0.36 per cent (category average: minus 13.68 per cent). And, when the fund went shopping for stocks, it was just before the market began to rally. The fund beat the category average by a margin of around 14 per cent in the April-June 2009 quarter.
| Sahara Banking & Fin Ser | |
| Period | Returns (%) |
| 1-month | -5.85 |
| 3-month | 4.28 |
| 6-month | 23.02 |
| 1-year | 114.75 |
| 3-year | - |
The fund is relatively more biased towards small-cap stocks. The portfolio is churned frequently, which has helped the fund outperform. “The hallmark of the performance of our fund has been prompt in booking profits," says fund manager AN Sridhar. “In a volatile market, when opportunities remain for a short time, this skill helps," Sridhar adds.
In the short while that the fund has been around, it has displayed great quartile performances. For the one-year period ended November 30, the fund delivered a return of 125 per cent (category average: 94.4 per cent, CNX Bankex: 111 per cent). Impressive as that is, do note that this fund is still one of the newer players, where timing has worked well in its favour.
UTI BANKING SECTOR
In the long run, this fund has served its investors well. The 5-year annualised return of 25 per cent (as on November 30) is in line with the returns of the CNX Bankex.
In 2007, it lagged both its peers. The reason could be the difference in stock selection. The fund was heavy on banking stocks and maintained a relatively low exposure to other financial services stocks, as compared to its peers. In 2007, the fund's average allocation to banking stocks was around 85 per cent and it was relatively more biased towards large-caps (average exposure: 75 per cent), when its peers played with lower-cap stocks to gain from the rally.
| UTI Banking Sector | |
| Period | Returns (%) |
| 1-month | -6.84 |
| 3-month | 3.17 |
| 6-month | 18.61 |
| 1-year | 65.84 |
| 3-year | 16.35 |
Its performance in the ongoing rally (March 9-November 30) has been pretty much in line with the category average, though it has stayed away from stocks like India Infoline, Indiabulls Financial Services, Reliance Capital and Srei Infrastructure Finance, which were quite popular among its peers. “I broadly avoid stocks which have liquidity concerns, specially in the brokerage and NBFC space. I stick to those where it is easy to assess profit ," says fund manager Arun Khurana.
The fund takes bold bets and its current allocation of 63 per cent to the top five holdings, places it highest among its peers. Its single-stock allocation has even gone up to 27 per cent (ICICI Bank in April 2007).
