In 2009, the fund's return of 104 per cent enabled it to beat the category average by a margin of 24 per cent! This is typical of the fund. In its 13-year history, it has displayed sporadic bouts of brilliance. But more often than not it as been content with reasonable gains coupled with downside protection.
The fund is mandated to pick stocks that are selling at a steep discount to their 5-year potential. "The investment selection process focuses on finding companies that are mispriced relative to their potential five years in the future. Once such stocks are identified, the analyst's job is to distinguish a 'cheap' stock from a 'bargain'," says Chetan Sehgal, CIO - India, Emerging Markets Group, Templeton Equity.
This approach leads to the fund manager picking stocks that are probably shunned by others. In 2008, despite Metals being among the worst hit sectors, the fund manager held on to his position. In fact, he bought more shares of Sesa Goa, SAIL and Tata Steel. In 2009, when the market rallied, he offloaded part of these holdings. Similar moves were seen in 2007 when tech stocks were reeling under the pressure of rupee appreciation. The fund manager held on to his allocation in Satyam Computers and between August and October 2007 bought Infosys Technologies, MindTree and TCS. When markets soared from 2009 onwards, he reduced holdings in those stocks. "Sell discipline is based on achievement of target prices or other assets available at significant discounts. Fund flows, both inflow and redemption, too have a bearing," says Sehgal.
The fund manager maintains a concentrated portfolio of around 28 stocks, peaking at 38. The top five holdings account for around 35 per cent of the portfolio. Though he plays across market capitalisations and does not hesitate in buying lower cap stocks, he maintains a large cap bent. The buy-and-hold strategy is evident in stock and sector bets; Energy and Financials have been its all-time favourites and the top sectors since 2005.
With a value-based investment approach, the fund is for long-term investors ready to hang on even when it does not rally with the market. Over the five-year period (February 28, 2010), its annualised return of 23 per cent is a tad above the Sensex and category average, both at 20 per cent.
