Investors willing to take embedded risk associated with small- and mid-cap companies can consider DSP Blackrock Microcap
AS THE name suggests, DSP Blackrock's Microcap Fund invests only in stocks of relatively small and mid-sized companies. These microcap companies, as defined by this scheme are companies, which do not form part of the top 300 companies by market capitalisation.
The fund was initially launched as a closed ended fund in June 2007, with a lock-in period of three years. It has, however, now been converted into an open-ended scheme, implying that the scheme is now open for the new investors from June 2010.
PERFORMANCE:
Given its investment mandate to invest in only mid and small-cap companies, DSP Blackrock carries an inbuilt risk associated with the stocks of such companies, especially in volatile markets. Thus, even though this scheme has had a decent launch in 2007 — a period extremely favourable for the launch of mid-cap based funds, the fund has had to struggle equally hard during the meltdown phase of 2008. In 2007, for instance, it generated about 50% returns from June–December 2007 for its investors against the Sensex and the Nifty returns of around 40% that year. Though healthy, these returns, however, fell short of beating the more than 66% returns generated by its benchmark index – BSE Small Cap during that period. The meltdown year of 2008 turned out to be a nightmare for this micro-cap fund whose net asset value (NAV) nosedived by more than 63%, eroding not just the returns made by the fund in the previous year but also the capital invested. The BSE Small cap index fell by about 70% that year. It was probably the closedended nature of the scheme that prevented many of its investors from exiting the scheme after this disastrous performance. And those who continued to stay invested would have no regrets today, for DSP Blackrock Microcap has turned out to be out-performer since then. In 2009, the year of market recovery, this fund made a huge turnaround as it successfully encashed upon the opportunities thrown open by the equity markets in the mid and small cap space. The fund returned a whopping 116% that year alone and has continued to do well in the current calendar year as well.
Since January this year, DSP Blackrock Microcap has delivered more than 45% gains till date taking its NAV to more than 17 per unit today. Thus, those who had invested into this scheme at the time of its launch and have continued to stay invested despite all odds have today earned handsome, absolute gains of more than 70% in these three years. This implies that every 1,000 invested in this scheme in June 2007 is worth more than 1,700 today.
PORTFOLIO:
DSP Blackrock is not a very large fund in size and currently manages assets less than 400 crore. However, despite its small size or AUM, the fund is adequately well diversified with more than 40 stock holdings in its portfolio. This reduces the portfolio risk per stock which is in fact much desirable for schemes like these, which seek to invest in high risk mid and small-cap segment of the market. As far as the fund's investment strategy is concerned, a brief analysis of the fund's portfolio over a period of time reveals regular churning of the portfolio with more emphasis on trading and booking profits at regular intervals rather than holding investments for a long time frame. Most of the fund's current stock holdings have been invested into by the fund in the current calendar year alone. While this ensures that the fund is quite proactive in moving across sectors and stocks wherever the fund manager finds visible opportunities, investors would, however, do well to note that such an active churning of the portfolio also raises the transaction cost of managing the fund in terms of higher brokerage charges. The fund's portfolio is, however, a fine blend of both the high and the low beta sectors thereby balancing its risk appetite. One can thus find the fund's equity portfolio tilted equally towards high beta sectors like engineering and construction and low beta ones like pharma, consumer durables and FMCG. Among the fund's current stock holdings, those which have turned out to be multi-baggers include — TTK Prestige, Whirlpool, TRF, Sadbhav Engineering and Zuari Industries among others. These holdings have, however, been invested into by this scheme for over nine months now. As far as some of its recent investments are concerned, multi-baggers on this front include Karur Vysya Bank, Coromandel International, Bajaj Auto Finance, CMC and Bayer Cropscience among others. In fact, nearly 80% of the fund's holdings are in profit zone today.
OUR VIEW:
Despite DSP Blackrock Microcap's stupendous performance over the past year and a half, we recommend this scheme only for those investors who are willing to take in the embedded risk associated with investing in small and midcap companies. For those willing to take on this risk, DSP Blackrock Microcap definitely calls for an investment.
