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Mutual Fund Review: Reliance Pharma

Investors looking to take a plunge in pharma space can consider Reliance Pharma given its diversified portfolio & healthy performance

 

RECKONED as a laggard till one-andhalf-year ago, the pharmaceuticals sector is now one of the front line stocks on the bourses. Over the past one year, pharmaceutical funds has rewarded investors with an average of about 88% returns, emerging as a top performer amongst all other sectoral or theme funds.


   And within the pharmaceutical funds category, Reliance Pharma has emerged as one of the top performers, consistently over a period of time. Launched in May 2004, the fund is in fact the last entrant in the category that comprises just about four similar funds — one each from UTI, Franklin Templeton and SBI Magnum.

PERFORMANCE:

Benchmarked to BSE Healthcare (HC) index, Reliance Pharma has consistently beaten its benchmark since the time of its launch – except for the year 2008 when it marginally underperformed BSE HC.


   Tracking its historic performance, the fund returned about 29% in 2005 even as BSE HC returned just about 1.8% in that year. And though the pharmaceutical sector was an underperformer in the year 2007 — the most bullish years of the decade, Reliance Pharma's relatively aggressive investment tactics helped it clock about 50% gains in that year against BSE HC's 16.5% then. The average returns by the category of pharmaceutical funds had stood at about 17% that year.


   In 2008, however, the decline of about 34% in the net asset value (NAV) of Reliance Pharma turned out to be sharper than that of BSE HC, which declined by about 33% that year. Those invested in the defensive pharmaceutical space may not have clocked in extremely handsome gains in 2007. But then they were equally well-off in the meltdown year which saw the major indices and the diversified equity schemes decline by over 50%. And given the rally in the pharmaceutical space last year (2009), those invested in the pharmaceutical space, especially in Reliance Pharma, have had ample reasons to rejoice.


   Even as BSE HC returned about 69% last year, the returns of Reliance Pharma soared by more than 118% beating even the Sensex and the Nifty returns of about 81% and 76%, respectively. Continuing its winning streak in the current calendar year, Reliance Pharma has returned about 11% since January this year against BSE HC's 5% returns during this period.


   The Sensex and the Nifty, given their extremely low weightages of about 1.3% and 2.4%, respectively in the pharmaceutical sector, have in fact generated negative returns of about 6% each till date in the current calendar year.

PORTFOLIO:

Unlike most other funds from the Reliance basket, which have preferences for high cash, especially in market volatilities, Reliance Pharma has sailed through the market tides with bare minimum levels of cash. The fund has held an average of just about 5.4% cash in the portfolio for over three years now. As far as its stock-holdings are concerned, currently its assets under management (AUM) worth Rs 360 crore is well diversified to about 18 stocks with exposure per stock restricted to about 8-9%. However, its bias to invest in the mid and small-cap space makes it relatively aggressive player in the pharmaceutical space.


   As this fund continues to hold many of its stocks for over three years now, it has made handsome gains on these holdings given the rally in the pharmaceutical space in the past year and a half. These include stocks like Aurobindo Pharma, Aventis Pharma, Divi's Labs and Sun Pharma.


   However, it is Zydus Wellness, which can be called the pick of the year for fund. Since the time Reliance Pharma has invested into this stock in April 2009, the stock has jumped by more than 500% till date. Its investment in Zydus Wellness currently account for nearly 6% of its AUM. As such, if one were to analyse the profitability quotient of Reliance Pharma's current portfolio, 100% of its equity holdings are currently in the profit zone.

OUR VIEW:

The popular maxim, patience pays, definitely holds true for the pharma investors, which has seen a dramatic turnaround in the past one-anda-half years. However, whether this rally in the pharma space continue in future is anyone's guess! As such, restricting ones investment to just a single sector calls for a great deal of caution and a high-risk appetite. And this risk appetite needs to be enhanced further in case of Reliance Pharma, given its high exposure to the small and mid-cap companies, which increases its beta as well as the risk quotient. But, given its well-diversified portfolio and healthy performance record, those willing to take a plunge in the pharma space can consider this fund.

 


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