Reliance Top 200 Fund

Category: Large Cap Analyst

Rating: Silver

Investment Style: Large Growth

Investment Process:

Reliance Top 200 Fund invests in companies that have high/rising ROEs and scalable business models.

Fund Manager: Sailesh Raj Bhan

Reliance Top 200 Fund is a predominantly large-cap Fund. However, its investment approach allows the manager to invest up to 30% of assets in mid-cap stocks. While the manager stays clear of investing in small-caps, the allocation to midcap stocks has hovered in the range of 10%-20% for a long time now. As of July 2017, large caps accounted for almost 88% of the portfolio. Bhan is benchmark-aware here, but takes reasonable sector deviations based on his top-down view. He prefers large-cap companies or companies with large-cap capabilities while investing. Hence, he scouts for businesses which are established, have a track record, or have dominance in their area. The companies qualifying this criterion are usually leaders in their respective sectors.

The idea here is to contain risk in the portfolio. Currently, significant portion of the portfolio is biased towards domestic growth recovery as Bhan believes that it is an important theme to capitalise on over the long haul. Having said that, the fund may struggle if this theme doesn't play out as per Bhan's expectation; the year 2016 is a case in point. But 2016 did provide him attractive investment opportunities and a chance to rejig the portfolio to make it future ready. While the core structure of the portfolio was not disturbed; the manager bought into NBFCs, healthcare, and insurance companies given their attractive valuations. From August 2011 (when the new strategy came in effect) through July 2017, the fund has had an impressive showing, outscoring its benchmark index and 86% of category peers.

Despite its underperformance in calendar years 2013 and 2016, it boasts an impressive track record over a three-year and five-year period. Over a 3-year period, it clocked an annualised return of 16.1%, outperforming its benchmark index, the S&P BSE 200 (11.7%), and 85% of peers. Similarly, over a 5-year period, it returned 19.8% annualised, beating the benchmark index (15.7%) and 86% of the category peers.

After a difficult 2011, the fund made a comeback in 2012 and had its best year ever in a peer-relative sense, beating 96% of the competition. Bhan's select small/mid-cap bets and investments in benchmark heavyweights (ICICI Bank and HDFC Bank) paid off handsomely. In 2013, the fund returned 4% and underperformed both the index and the category average.

Bhan's relatively higher exposure to small/mid-caps, his underweight position in the defensive sectors, and investment in few select stocks--led to the underwhelming result. While the fund had a good run in 2014 and 2015, it struggled in 2016 as demonetisation and Bhan's bet on domestic growth didn't pan out as expected. However, it bounced back this year and has so far (till July 2017) outperformed 89% of competition.