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Sahara Power and Natural Resources Fund

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One of the main purposes of investing in mutual funds is that they reduce risk through diversification in their portfolio. However thematic funds defeat this purpose by investing in only a few selected sectors which fall under a particular theme, thereby exposing investors to a greater level of risk. Furthermore, thematic funds may not adequately compensate investors for the level of risk undertaken by them if the underlying theme fails to perform.

Sahara Power and Natural Resources Fund (SPNRF) is one such open-ended thematic equity fund from Sahara Mutual Fund.

The fund's primary investment objective is "to seek to generate capital appreciation through investment in equities and equity related securities of companies engaged in the business of generation, transmission and distribution of power or in those companies that are engaged directly or indirectly in any activity associated with the power sector or principally engaged in discovery, development, production, processing or distribution of natural resources. The fund is mandated to invest 65% - 100% of its total assets in equity and equity related instruments. The fund can invest upto 35% of its total assets in debt and money market instruments. Honoring limits on individual asset class, the fund may also invest upto 10% of assets in foreign securities.

Equity Portfolio

Holdings

April 2011

May 2011

June 2011

July 2011

August2011

Gujarat Mineral Devp. Corp. Ltd.

4.6

3.7

3.9

3.6

4.4

NTPC Ltd.

2.8

2.3

2.6

2.5

4.3

Rallis India Ltd.

2.9

2.9

3.2

3.5

3.9

Petronet LNG Ltd.

3.4

3.1

3.2

3.5

3.8

PTC India Ltd.

2.6

2.6

2.5

2.5

3.6

Chambal Fertilisers & Chemicals Ltd.

2.0

2.1

2.1

2.7

3.5

Thermax Ltd.

2.1

2.0

2.0

3.8

3.5

Rural Electrification Corp Ltd

3.4

3.2

3.0

3.3

3.3

Power Grid Corp Of India Ltd.

3.0

3.0

3.3

3.3

3.3

Oil & Natural Gas Corp Ltd.

3.6

2.7

2.9

3.0

3.1

As on August 31 2011, top 10 holdings of the portfolio accounted for only 36.74%. The fund holds 33 stocks as per the latest disclosed portfolio and top 5 sectors constitute 47.62% of its equity assets. It suggests that in spite of being a thematic fund, SPNRF carries a lower stock concentration risk. SPNRF churns its portfolio frequently which is revealed by its portfolio turnover ratio of 156.0%.

How SPNRF has fared vis-à-vis its peers

Scheme Name

6-Mth (%)

1-Yr (%)

3-Yr (%)

5-Yr (%)

Std. Dev. (%)

Sharpe Ratio

Sahara Power & Natural Resources (G)

-1.1

-20.2

8.9

-

10.18

0.07

Reliance Natural Resources (G)

-5.5

-10.3

3.9

-

8.28

0.03

UTI Energy (G)

-4.6

-19.6

3.0

-

7.99

0.01

Sundaram-Select Energy Opp (G)

-0.3

-15.5

2.6

-

9.86

0.02

Reliance Diver Power Sector (G)

-13.4

-33.6

2.2

14.8

9.22

0.00

Category Average of Opportunities Funds*

-4.5

-16.0

10.1

8.4

9.05

0.08

S&P CNX Nifty

-9.1

-17.8

5.2

6.8

9.1

0.03

The performance of SPNRF is superior to the performance of S & P CNX Nifty on the time frame of 1-Yr and 3-Yr CAGR. However, when compared against the performance of opportunities funds, SPNRF has underperformed over the same time period. SPNRF has been more volatile in comparison (as revealed by higher standard deviation than that of the category of opportunities funds). Moreover, SPNRF has generated lower risk adjusted returns (revealed by the lower sharp ratio). This goes to prove that while the theme underlying the fund may be of utmost importance in the development of the country, but when it comes to investing, one will benefit more by investing in a well diversified fund. Opportunities funds, as a category, stand out due to their diversification across various sectors, stocks and market capitalisations.

Fund Manager Profile

Name of the Fund Manager

Mr. A.N.Sridhar

Total Work Experience

Over 24 years

Managing the fund since

April 2008

Qualifications

P.G.in Electronics and MFM

 

As seen above, the performance of Sahara Power and Natural Resources Fund is not up to the mark when compared with the performance of diversified opportunities funds. Due to their diversified nature, opportunities funds carry lower risk of concentration than the thematic funds and due to their flexibility to move across themes/sectors, they have better chances to exploit opportunities presented by various sectors.

Having said that, investing randomly in opportunities funds may not fetch you superior risk adjusted returns but a careful selection can help you capitalise on the investment  opportunities.

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