A classical diversified equity scheme, Fidelity Equity does not promise the moon. Its pretty stable portfolio, however, will suit those seeking modest returns from their investments
FIDELITY Equity, a plain vanilla equity scheme, has emerged to be a reasonable fund so far since its launch in April '05. Its pretty stable portfolio may not have generated outstanding returns, but at the same time have not disappointed the investors either. With an asset size of about Rs 2,860 crore, Fidelity Equity also stands out to be the largest equity scheme in the Fidelity basket.
PERFORMANCE:
Fidelity Equity's performance is more or less aligned to the broader market indices like the Sensex and the Nifty and its benchmark index, the BSE 200. For instance in 2005, the year of its launch, the fund returned about 44% against 46% of the Sensex, 43% of the Nifty and 39% by the BSE 200. In 2006, the fund generated 44% returns, while the Sensex, the Nifty and the BSE 200 gave about 47%, 40% and 40% returns, respectively.
The fund's performance, however, was a bit disappointing in the most happening year 2007, when compared with the returns of many other pure diversified equity schemes. Its 55% returns may have been at par with similar returns from the Nifty but the fund grossly failed to beat its benchmark – the BSE 200 that gave returns over 60% and even the returns turned in by average of the diversified equity schemes, which was about 59% in that year.
Despite the fact that the mid- and small-cap stocks were a rage in 2007, Fidelity Equity abstained from taking any aggressive exposure in these market segments. Similarly, sectors like real estate, which were selling like hot cakes then, were clearly out of its investment trajectory, while exposure to infrastructure and construction sectors was limited. This lack of aggressiveness did cost the fund dearly in 2007. But this strategy also acted as a cushion in the following year when the markets tanked. The market meltdown of 2008 saw the Sensex and Nifty return -52% each, while the BSE 200 was down with -57%. Fidelity Equity faired a notch better with fall in its net asset value restricted to 50%. In 2009, the fund was back to its original pace generating 85% returns against the Sensex's, the Nifty's and the BSE 200's 80%, 75% and 88% returns, respectively.
PORTFOLIO:
With over 60 stocks in its portfolio at any given point in time, this fund is fairly diversified with an average exposure of less than 5% to any single stock. The only exception is Reliance Industries, which is its biggest holding since April '07, and on an average accounts for about 7% of the fund's portfolio for over a year now. In fact, most of the fund's holdings are prominent large-cap stocks that the fund has been holding for over 2 years now. These include RIL, Bharti Airtel, ICICI Bank, BHEL, SBI, Infosys, L&T, HUL, PNB, HDFC Bank, ONGC and ITC to name a few. In a nutshell, the fund has what the broader market has and this well explains the reason for its returns being more or less aligned to the market.
While the fund does churn the portfolio occasionally, the churn is restricted to mid- and small-cap scrips as it has been steadfast in its exposure in the Nifty and Sensex stocks. Nonetheless, the fund also needs to be credited for making some prudent and timely investments like TCS (Jun '09), Sterlite Industries (May '09), Rural Electrification Corporation (Dec '08) and LIC Housing Finance (Apr '09). Each of these scrips have returned generously since their acquisition.
Having abstained from real estate for so long, Fidelity Equity finally took its first steps in the sector by investing in Unitech and DLF last year. However, it is the financial services and energy sectors that have continued to enjoy the fund's fancy for over two years now.
OUR VIEW:
Pure diversified equity schemes, sans bias for any market capitalisation or theme, are considered to be the most ideal of all mutual fund investments. While they may not turn out to be multi-baggers like their aggressive mid-cap or sectoral funds, their returns are, nevertheless, decent and suit many investors. Fidelity Equity belongs to this league and while it may not promise extraordinary returns, one can expect its returns to be at par with the market. As the fund stays away from taking aggressive and momentum calls, Fidelity Equity is ideal for those seeking stable and modest returns.
