This tiny fund packs in quite a punch. After an absolutely dismal 2006, it shot to prominence in the bull runs of 2007 and 2009.
Its fall in 2008 was in line with the category average. A move that hit the fund was the increased exposure to Metals which the fund manager got into late 2007 and continued upping all the way into April 2008. The bad timing did not help. So when Shah took over the fund in April 2008, he began by lowering the exposure to Metals.
Shah's philosophy is to buy stocks with a secular growth story. "We focus on good companies, not on the market. We focus on long-term growth opportunities in India, not on market direction," is how he puts it. He certainly got it right with his equity exposure. In December 2008, when exposure to cash and debt was high amongst equity funds, this fund had an 83 per cent exposure to equity, which rose to 88 per cent over the next two months. By March 2009, it was at 90 per cent and by May 2009, the fund was fully invested (96%). Naturally this put the fund in an enviable position to benefit from the rally.
Despite the agility that a small fund offers, this one opts for a large-cap bent, refrains from frequent churning and tilts towards a buy-and-hold approach. Shah believes in buying good businesses and is rather cautious by nature. Last year he remained underweight on Metals because he was not convinced about the global recovery. Had he gone against his conviction, he might have delivered even more impressively. But with the current European crisis, he stands vindicated.
There has been a tilt in his portfolio from asset creators to asset owners. "Infrastructure as a sector is going to do well but one has to appreciate that it's a long-term story. Because of rich valuations where asset creators are concerned, we are being cautious and realistic in terms of expectations. Not only are they too expensive but will continue to hit roadblocks," he says. Hence stocks like L&T are out but others like GAIL and Mundra Port & SEZ are in. And even when he is bullish on a sector or stock, if there is a significant appreciation in price which he feels is not justified, he books profits.
The corpus being small, Shah goes with a portfolio of around 35 stocks, which is fairly diversified relative to size. The allocation of 58 per cent to the top three sectors is in line with the category average.
