Scouting for value stocks might make it difeerent, but Tata Equity PE's performance speaks for itself…
Tata Equity PE got its act together in 2007 when its bold allocations to Metals, Energy and Financials delivered impressive returns.
The fund's strategy is to invest at least 70 per cent of its net assets in stocks that have a trailing P/E less than that of the Sensex at the time of investment. But this does not necessarily imply that the portfolio would naturally be value based. Simply because the fund managers gravitate towards low PE stocks does not translate into them offloading when it goes up. Moreover, they have a free hand with the balance 30 per cent.
The fund's mandate to scout for value will result in a portfolio that is quite different from its peers. In 2008, the fund managers cast their lot with Metals. While the category average allocation to that sector was around 6 per cent that year, there were times when this fund had it at 29 per cent. They also stacked up on Services and Financials. "Our focus is to scout for value. So even within Metals, we had some positions in stocks that were not very highly leveraged and had cash on their books. Similarly, for Financials, we looked for stocks where dividend yield, low price to book etc, could act as a cushion," say the fund managers.
The fund managers' agility in 2009 was remarkable. Cash was lowered, large cap exposure dropped and a timely move to Technology turned out to be beneficial. "We saw a lot of value so exhausted our cash allocation. Exposure to Technology did help, specially in Tier II companies," they said. The moves paid off handsomely. Currently exposure to IT has been brought down substantially because steep undervaluation in the sector no longer exists. "We are positive on IT on a longer term basis, but for the interim we have reduced our overweight position in the sector as it's more fairly priced than what was the case a year ago," they say.
Interestingly, cash exposure of the fund increased to 8 per cent in October 2009, from less than 1 per cent in the previous month and has averaged around 12 per cent in the four months ended February 2010. "We have been receiving regular and robust inflows," they say. "But, in our view, 10 per cent cash is not a cash call but gives us flexibility to pick stocks in distress."
The diverse portfolio won't see much aggression with individual stock bets, though strong sector exposures have been the norm.
