Launched in 2003, it started off as a middle-of-the-road performer and began to take on the competition in 2006.
Savvy sector selection is probably the reason for the above-average returns. Betting heavily on Engineering and Services proved fruitful in 2006. The fund manager increased exposure to Banking during the second half of the year. He was quick to book profits and lower the exposure by February 2007. In 2007, he capitalised on the rally in Metals, Financial and Engineering. He also bet on Construction but exited Technology.
In the downturn of 2008, he fled to FMCG and Healthcare and took refuge in debt and cash. In 2009, the fund delivered admirably with a return of 120 per cent (category average: 97%). The fund manager focussed on Construction, Capital Goods, Power and Cement, while the large cap allocation dropped to less than 10 per cent for the better half of the year.
What's interesting is the fund manager's flexibility. At the end of 2008, he was heavily into debt. Which he totally offloaded in early 2009 to significantly move into cash. Just before the rally which began in March, his large-cap allocation stood at 25 per cent in February (that is the maximum limit his fund has on large caps) to drop to 1 per cent in just two months.
Though the portfolio is churned fairly frequently, this fund isn't aggressive. In fact, it avoids concentrated bets. Since 2005, no sector has breached the 20 per cent mark (though this is quite a high limit), and no single stock has crossed 7 per cent. "In the mid-cap space, liquidity could be an issue so we try to limit individual stock exposure to 5 per cent. As for sector allocations, in order to maintain diversification, we ensure that we are not too divergent from the benchmark," says Mahesh Patil, Co-head, Equity, Birla Sun Life Mutual Fund. Though currently at 53, the portfolio is sometimes bloated. "That could also be a result of portfolio transition," says Patil. "Whenever one shifts between themes (say defensive to growth), it takes time to offload stocks, hence during the transition phase the number rises."
During market rallies, this fund makes its mark. Yet, during downturns, it will not dramatically stray from the category average. Its appeal lies in the fact that over the long run, it rewards its investors. In the 5-year period as of April 30, 2010, the fund's annualised return was 27 per cent (category average: 21%).
