The fund has proved its worth in both market upturns and meltdowns
This scheme follows a bottom-up investment style by identifying companies with a strong competitive position in good businesses with quality managements. This 7-year old fund underwent a makeover in 2007 and has not looked back since. In its earlier days, its portfolio had a distinctive mid-cap tilt and was a very erratic portfolio in terms of stock allocations. Ever since 2007, the fund began to take a distinctive large-cap bias and the portfolio began to stay consistently diversified. Its transformation into a more stable offering has been reflected in its numbers; it has beaten its peers in market downturns and upturns. At the end of 2010, the three-year annualised return was 4.6 per cent compared to the negative returns of its benchmark BSE 200.
A great believer of the Consumption story, in July 2010, Shah added FMCG stocks to the fund's portfolio, a sector that was missing till then, while reducing exposure to Financial Services. "FMCG is predominantly dependent on domestic consumption which is an inherent driver for Indian economy," he justifies. Moreover, he feels that rural India is undergoing a favourable transformation which will add to the sector doing better.
While stocks like Bharti Airtel, HDFC Bank, BPCL and BHEL have been consistently part of Shah's portfolio, the fund manager tends to book profits in stocks that are fancied by the market during rallies. Evidence to this fact is that its portfolio turnover and pruning are prevalent only in a select set of stocks that witnessed sharp market interest at that point in time. This strategy coupled with his bottom-up approach may result in a few contrarian calls.
Our View
The fund has evolved into a stable offering and investors can consider it for its diversified portfolio, large-cap tilt and consistent performance over a five-year period. The fund primarily invests in bigger stocks and, to prop up its returns, will opt for mid- and small-cap stocks to a maximum exposure of around 25 per cent of the assets. Besides delivering well during market upturns, the fund has also proved its worth during market meltdowns.
