DSP BlackRock Micro Cap Fund is a small cap fund launched in June 2007 with an objective to seek long-term capital appreciation by substantially investing in a portfolio of stocks that are not part of the top-300 companies by market capitalisation. The fund was initially launched as a close-ended fund, but was subsequently made open-ended in June 2010. The fund, which is jointly managed by Apoorva Shah, Vinit Sambre and Mehul Jani, had assets under management of Rs 437 crore as on January 2011.
The fund has been ranked Crisil Fund Rank 1 (top-10 percentile of the peer set) in the Small & Midcap equity category for the last three quarters till December 2010. The fund's superior risk adjusted performance is complemented by good scores on company concentration, industry concentration and liquidity parameters.
Performance
The fund has outperformed its benchmark (BSE Small Cap) and peers in the last 1-, 2- and 3-year timeframes. The fund has given the highest returns in the Small & Midcap category for a two-year period. Though the volatility in the smallcap space is higher than the largecap and midcap segments, the fund has successfully managed the risk by outperforming its benchmark with high margins. In the last one year, the fund delivered 15.62 per cent returns vis-à-vis the benchmark delivering negative 0.7 per cent returns.
Although the fund has underperformed the peer category (based on average performance) in the three- and six month periods (as on February 23, 2011), given the volatile nature of the category, gauging the fund on longer time periods is desirable, wherein the fund ranks higher both on returns and Crisil's Mutual Fund Ranking.
Since its inception (June 14, 2007), the fund has outperformed its peers. An investment of Rs 1,000 in DSP BlackRock Micro Cap Fund since inception would have grown to Rs 1,419 on February 23, 2010. The same amount invested in the peer group would have returned Rs 1,181 and in the benchmark would have returned Rs 1,098.
AUM growth cycle
After the global downturn in 2008, the assets under management (AUM) of the fund have grown three-fold from Rs 144 crore in January 2009 to Rs 437 crore in January 2011. This growth is jointly attributed to fresh inflows in the fund after its conversion as an open ended fund in June 2010, as well as market recovery.
Portfolio diversification
The fund has maintained a well diversified portfolio currently holding 47 scrips. In the Crisil Mutual Fund ranking, the fund has a high score on concentration analysis, indicating low portfolio concentration. In January 2011, the top-5 sectors in the portfolio constituted 35 per cent of total net assets and top-5 companies constituted 20 per cent of total net assets. In comparison, the peers accounted for 43 per cent as top5sectors and 26 per cent for top-5 companies.
Over the last quarter, the fund manager has raised equity exposure to reap the benefit of market volatility and reduced cash holding to 7 per cent in January 2011 from 13 per cent in October 2010. On an average, the fund has maintained cash holdings of approximately 13 per cent in the last one year.
Portfolio analysis
Industrial manufacturing, fertilisers & pesticides and pharmaceutical are the top-three sectors in the fund's portfolio and constitute 37 per cent of total net assets. When compared with the average sectoral exposure in the last one year, the allocation to fertilisers & pesticides, financial services, IT and energy has increased. In the last three months, the fund manager has added investment companies, fertilisers — speciality and bearings and exited from leather and steel sectors.
Risk analysis
DSP BlackRock Micro Cap fund, being smallcap in nature, may experience greater volatility and lower liquidity when compared with largecap funds.
At a given level of risk, the fund manager has been able to generate an alpha of 0.21 in the last one year, against the peer average of 0.02. The risk-adjusted returns of this fund are higher than its peer average.
