After a fabulous run between 2003 and 2005, the fund hit a rough patch between 2006 and 2008 and underperformed the category average consecutively all those years. But the reason was not bad fund management. The reason was simply that the fund manager's convictions were not recognised by the market for a period of time. For instance, in 2007, being underweight on Energy and Metals and overweight on FMCG and Pharma limited the fund's gain.
The reason for the mixed performances is also due to the fact that allocation to mid and small caps has led to some exceptionally good years but also results in the fund getting beaten down during market downturns. In 2009, it grabbed the top slot with a return of 112 per cent. Conversely, in 2008, the refusal to run into cash and pack the portfolio with large caps affected returns.
But the fund manager eventually gets rewarded for sticking his neck out. And in the past two years, he has definitely stood vindicated. Even if one looks at the current three-year annualised returns (for the period ending January 31, 2012), which are in the vicinity of 34 per cent, there is no denying the impressive calibre of this fund.
If you are looking for a large-cap fund, this will not suit you, though there will be periods when such stocks dominate. The fund manager changes the composition of the fund depending on market conditions. This fund does not have any bias towards stocks of any capitalization. As there is a lock-in period of three years, we don't think it is required to have a large-cap bias as liquidity is not the issue.
Currently the fund holds 14 stocks which are held by less than 10 other equity funds. The fund manager has also taken a contrarian view by going underweight on FMCG. "We believe that the sector is highly valued and we think Pharma gives the same kind of payoff at lower valuations
The fund has the lowest Price-to-Earning (PE) and Price-to-Book (PB) ratio among its peers. But this is because of the exposure of the fund towards smaller stocks, not because it follows a value approach. This is a multi-cap fund which does not follow a specific value or growth strategy. It follows a combination of all kinds of strategies as it is an all-purpose fund to cater to the mass investor.
Although, the top holding (Reliance Industries) accounts for around 10 per cent of the portfolio, allocation to top five holdings (25%) is on the lower side.
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