L&T India Special Situations Fund

Investment Objective

The scheme aims to invest in undervalued companies for long term investment with key theme focus being 'Special Situations' - these are situations that are out-of-the-ordinary and which therefore present interesting stock picking opportunities.

Analysis

The stated idea behind this fund (which was launched as Fidelity Special Situations before it was acquired by L&T), as is indicated by its name, is that it will invest in funds that are "out-of-the-ordinary and which therefore present interesting stock picking opportunities." In practice, the name refers to potential turnaround situations, under valuations due to some unusual or less understood factors, possible M&A targets and such. However, in the portfolio it actually runs, it's hard to clearly link individual stocks to specific special situations.

In terms of capitalisation, this is a multi-cap fund, which is well-managed and has risen heads and shoulders above most of its peers. Since launch, it has failed to beat its benchmark in only two of the seven years and has built a healthy cumulative advantage of 22 per cent over it in this period. Not just that, since March 2009 (when the global financial crisis was coming to a close), it has steadily built up this advantage through good times and bad.

This constant improvement shows up nicely in its Value Research Star Rating. While its lifetime average rating is 3.26, it's two year average is 4.05 and one year average 4.34. While once the fund used to wander between 3 and 4 stars, it is now a definite part of the 4 and 5 star constellation.

In terms of portfolio strategy, large cap stays in the 50 per cents, mid cap in the 20s and 30s and the rest for small caps. However, during 2011 to early 2013, it was lower in midcaps, first as a result of bias to small-caps and then for large caps.

This corresponds to the period that it was surging against the benchmark. "While there is no style bias for managing this fund, typically one could expect to see a large portion of portfolio invested in undervalued or contra bets. There are no hard limits and allocation to different segments of the market is purely an outcome of bottom-up stock picking. However, from a risk management perspective, we typically look to restrict mid and small cap exposure within 50 per cent.