LAUNCHED in March 2005, Reliance Equity Opportunity Fund's objective enthused investors initially and so the fund managed to mop up more than 2,000 crore of assets under management (AUM) soon after its launch. However, the erratic performance of the fund has diminished its glory over the years.
PERFORMANCE:
Reliance Equity Opportunity has had a very crooked performance graph. The fund started off on a good note and became a top quartile performer in 2006.
However, in the next two years, it failed to impress and underperformed the major market indices as well as the benchmark. In 2007, when market indices were at their peaks, the fund returned just about 47% against 60% by the benchmark BSE 100. In 2008, it fell more than the market indices and benchmark. When the market began to rally in 2009, the fund manager didn't seem to change the conservative investment strategy. The cash holdings continued to be more than 15% through the second quarter of 2009, thereby hampering the returns in the first half of the year. However, the fund manager made up for this lag in the second half. The fund generated an overwhelming return of 109 % as against 81% and 75% return by the Sensex and the Nifty, respectively. In 2010, the fund continued its electrifying performance as it generated as much as 30% return, which was double the return generated by the Sensex and the Nifty.
PORTFOLIO:
Reliance Equity Opportunity Fund is an opportunity grabber. The fund has the leeway to invest in both domestic companies and stocks listed outside India. There is no sector bias, nor any market capitalisation tilt for this fund, which comfortably holds 33 stocks as of January 2011.
It started off with a focus on large-cap companies but gradually moved to smaller companies making it riskier when compared to other equity diversified funds. Currently, the top three sectors of the fund are services, financial and technology. Interestingly, the fund has an even mix of both conventional and nonconventional stocks. In service sector, the fund has invested in Trent, Shoppers Stop, Cox & Kings, Hindustan Media Ventures and Dish TV. In the healthcare space, it holds Divi's Laboratories and Aventis Pharma.
Reliance Industries, which was an alltime favorite stock of the previous fund manager, no more finds space in the portfolio ever since the fund been taken over by its new manager. Some other stocks that were unique to Reliance Equity Opportunity Fund including Unichem Laboratories, Piramal Life Sciences, Hinduja Venture and Micro Ink are deleted from the portfolio.
A few stocks that have been a part of the portfolio for more than three years now include ICICI Bank, SBI, Cummin India and HCL Technologies among others. The fund follows a buy-and-hold strategy and hence, the portfolio churning ratio of the fund is as low as 0.79 times. This is unlike a mid and small-cap fund, which generally requires more churning to generate additional returns.
OUR VIEW:
Notwithstanding its patchy performance record, the fund has been able to generate good returns. However, exposure to small and mid-cap companies increases the fund's risk quotient. The fund is suitable for investors looking for high returns at high risk.
