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Multi-cap funds provide investors a benefit of investing across market capitalisations - be it large caps, mid caps or small caps. Their investment mandate does not restrict them to invest in only a specific market cap segment, which thus provides them an opportunity to create wealth by delivering alpha returns. Moreover, they are not confined to one particular style of investing, which allows them to follow a value, growth or blend style of investing. While undertaking their stock picking activity too they can follow a bottom-up as well as a top-down approach of investing across capitalisations.
Sundaram Equity Multiplier Fund (SEMF) is one such open-ended equity oriented multi-cap fund from the stable of Sundram Mutual Fund, which follows a blend style of investing. SEMF is mandated to invest in equities and equity-related instruments across capitalisation, along with debt and money market instruments. Launched in February 2007, the fund has been in existence for a little over 4 ½ years now.
The fund's primary investment objective is "to seek capital appreciation by investing in equity & equity related instruments." The fund is mandated to invest 65% - 100% of its total assets in equity and equity-related securities (across capitalizations) - including investment in derivatives, and the rest (upto 35%) in debt and money market instruments to manage its liquidity requirements".
For individually picking stocks, the fund follows a combination of both value and growth style of investing (commonly known as blend style) and aims to own a compact portfolio of not more than 40 stocks. However the key factors to its investment strategy are:
- Identifying attractive investment opportunities and take concentrated exposure
- Investing across all sectors in the economy
- Investing across market-cap category
- Selecting stocks with an investment horizon of 3 to 5 years
- Taking active cash calls (even upto 35%) if the market conditions warrants such stance
Over the past one year, SEMF's exposure to the large cap segment has been rather petite (15% - 27%), but it has gone rather aggressive in the mid and small cap domain by taking exposure in the range of 64% - 75%. However, this dominant exposure towards the mid and small cap space has not been able to fuel returns across time frames. In fact during the downturn of the Indian equity markets, the fund has shown a tendency to plunge violently, thus eroding its investors' wealth.
In order to manage the liquidity requirements and be defensive, SEMF in the past one year has held upto 19% in cash and cash equivalents.
Equity Portfolio
SEMF's portfolio largely constitutes of 'A' and 'B' group stocks. It latest portfolio (as on September 30, 2011) comprise of 23 stocks, wherein the 'A' group ones constitute 65% of the portfolio and the remainder (30%) is held in the 'B' group ones. While positioning its top-10 portfolio too SEMF holds a major (70%) portion in the 'A' group ones thus preferring to be defensive.
It is noteworthy that SEMF has held its portfolio quite consistently without indulging in rampant portfolio churning (as revealed by its portfolio turnover ratio of 0.40 times). But its mid and small cap bias portfolio has failed to generate superior returns for investors.
Being benchmarked to the S&P CNX 500 index, SEMF's latest portfolio (i.e. as on September 30, 2011) constitutes of 32 stocks, where the top-10 stocks account for 59.3% of the portfolio while the top-5 sectors account for 55.6% of its portfolio.
How SEMF has fared vis-à-vis its peers?
The above table reveals that on the return front, SEMF's performance vis-à-vis its peers has been disappointing. Over a 3-Yr time frame, the fund has delivered a return of mere 16.1% CAGR - being the lowest in the peer set above and even underperforming its benchmark index.
On the volatility front, SEMF has exposed its investors to low risk (Standard Deviation of 7.92%), but again the risk-adjusted returns clocked (as revealed by the Sharpe Ratio of 0.12) aren't very appealing and rather lower than those generated by its benchmark.
Fund Manager Profile
| Name of the Fund Manager | Mr. Satish Ramanathan |
| Total Work Experience | Over 15 years |
| Managing the fund since | Sep-07 |
| Qualifications | IIT, MBA, CFA |
As seen above Sundaram Equity Multiplier Fund's performance is nothing to vie for, as it is lowest in the peer set above and even underperformed its benchmark over a 3-Yr time frame. Moreover, while the fund has held its portfolio consistently (without indulging in much portfolio churning), the dominant exposure towards the mid and small cap domain makes it a risky investment proposition. A noteworthy point is, in the past the fund has shown a tendency to plunge violently during the downturn of the Indian equity markets. We believe it would be prudent not to invest in Sundaram Equity Multiplier Fund at least for now.
Sundaram, as a fund hosue, has some of the best performing equity oriented schemes in its portfolio. However, SEMF is the best example for investors to understand that why one should not invest blindly in a fund which is being offered by a fund house of high repute as even the most sought after fund houses can falter. Rigours analysis and continuous monitoring can help investors avoid investment blunders.
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