The right sectoral calls have helped this fund's performance in recent years
As the name implies, the fund has accomplished what it stated it would do. And in the bargain, has made money for its investors.
Launched in July 2005, it got off to a weak start. It delivered a meagre 11 per cent in 2006, underperforming both, its category and benchmark by huge margins. One of the reasons being the high allocation to mid cap stocks when it was large caps that rallied that year. Coupled with sector picks that went wrong, such as being overweight on Auto (BSE Auto was among the worst performing indices that year).
Come 2007, the fund began to make up for lost ground. Upadhyaya took over in March 2007 and since then the fund's performance has been more than impressive. Over the 3- year period ended February 28, 2010, it was the best performing fund in its category with an annualised return of 20.01 per cent, double than that of its benchmark (10.30%) and category average (10.32%).
The mandate of this fund requires Upadhyaya to dynamically shift between sectors depending on the macro economic outlook and opportunities available in the market. How does he take such a call? "We hold on to a sector until we see a huge valuation gap between that sector and the market. Or, there has to be some fundamental development which is negative in the sector leading to a sell-off. Alternatively, it could just be that there is another sector that looks more attractive," he explains. In 2009, he moved out of FMCG and into IT. He got into Metals early in the cycle. He continued with Hero Honda and his bets on Tata Motors, ICICI Bank, Hindalco and Lanco Infratech made it for the fund.
By and large, Upadhyaya attempts to keep around 65-75 per cent of his portfolio in 4 to 5 select sectors which he believes will outperform the broader market in the short to medium-term. He also sticks to a 70 per cent large cap tilt and averages at around 40 stocks in the portfolio.
The high cash levels in the fund don't imply that he is not fully invested but indicate derivative exposures. "We employ derivatives either to hedge part of the portfolio or employ it for reverse arbitrage trades. Also, entry and exit is easier in the futures market because of high liquidity," he says.