Investment Objective and Proposition

The fund's primary investment objective is "generate long term capital appreciation income through investments in equity and equity related instruments; the secondary objective is to generate some current income and distribute dividend. However, there is no assurance that the investment objective of the scheme will be achieved." Following large cap bias, LTGF invests 80%-100% of its total assets in equity and equity-related instruments and upto 0%-20% in debt & money market instruments.

Portfolio Characteristics

In the last one year, exposure of LTGF to large caps has ranged between 74%-86% of its assets. It has invested small portion of its assets in mid and small caps. However, the fund has not refrained from taking aggressive cash calls and at times has held about 24% of its portfolio in cash and equivalent assets. While buying stocks for its portfolio, LTGF follows the bottom-up approach whereby it focuses on company specific factors rather than the economic trends. The fund aims to control the risk through broad diversification within the confines of its investment strategies. Stocks are included in the portfolio based on their assessment on the following key parameters.

·         Management quality, strategy and vision

·         Business dynamics

·         Financial strength of the company

·         Free cash flow generation

·         Returns on capital employed and returns on equity

·         Intangible assets such as brands, distribution etc.

·         Valuation in relation to the history of the stock as well as its peer group.

Equity Portfolio

As per the portfolio disclosed on March 30, 2012, the fund holds in all 37 stocks. Top-10 stocks constitute 47.0% of the portfolio, while its exposure to top-5 sector concentration has been 43.3% of its total portfolio. As on March 30, 2012, the large caps constituted 84.9% of the portfolio, while its exposure to mid and small caps was 4.9%, cash and cash equivalents assets were to the tune of 10.2% of the total portfolio. The fund manager of LTGF has not excessively churned the portfolio which is revealed by its portfolio turnover ratio of 1.1 times which is considered moderate.

How LTGF has fared vis-à-vis its peers

The table above reveals that LTGF's performance has been ordinary. Over a 3-Yr time frame, the fund has generated returns at 22.3% CAGR thereby outperforming its benchmark index – S&P CNX Nifty. However, it has underperformed its benchmark over the period of 5 years by generating 5.4% CAGR returns against 7.3% CAGR returns generated by S&P CNX Nifty. On the volatility front, the fund has exposed its investors to a greater risk by being more volatile than some of its category peers and its benchmark. Its standard deviation of 7.93 (which is a measure of risk) is higher than that of S&P CNX Nifty. The Sharpe ratio too (risk adjusted returns) is higher than that of S&P CNX Nifty but appears ordinary in comparison with its peers.

Performance across Market Cycles

(For a period over 1-Yr the returns calculated are CAGR, while for less than 1-Yr they are absolute)

Study of performance across market cycles reveals that LTGF has been extremely inconsistent. It fails to make its mark in any of the market cycle; be it bull or bear; it has never been dependable. It failed to perform during the ferocious bull market of 2005-08 and also disappointed in the subsequent bear phase. Although the performance of LTGF has improved a bit in last 2 years; it still struggles in difficult market conditions.

Fund Manager Profile

Despite being a large cap fund, LTGF has been shaky and volatile. Although last 2 years have been reasonably good for the fund; its performance still doesn't look promising. Investors would be better off avoiding LTGF Fund as it would be imprudent to overlook the shortcomings in the performance of the fund.

Investing in a fund managed by a fund house which follows systems and processes and has an established track record of performance may enhance your chances of benefiting from your mutual fund investment