DSPBR Micro Cap Regular delivers in bull runs but falls harder in market downturns…
Strategy
The fund adopts the undervalued, under researched and under owned strategy with regards to stock selection. The fund will invest primarily in stocks of small companies which would mean currently investing predominantly in stocks with market cap of less than Rs 3,000 crore. The stock selection will be based on businesses with scalability as micro-caps are generally varied, uncorrelated to broader markets and not sector specific. The fund may also use various derivative and hedging products and techniques, in order to generate better returns.
Our View
This fund started off as a closed-end offering and was converted into an open-ended fund in June 2010. Investors here are a happy lot though they would have had tense moments when the fund got hit in 2008. Fortunately it did not face much redemption pressure. Since then the fund has more than rewarded its investors. It steamrolled ahead in 2009 and last year was the best performing fund in its category. The fund's exposure to small-cap pharma stocks, besides off-beat exposures to Capital Goods and Construction have aided performance.
The Verdict
The fund manager very wisely ensures that individual stock bets are not high at all. Currently, none crosses 4 per cent of the assets of the fund. Nevertheless, the fund is a risky bet. It invests only in mid- and small-caps and avoids large-cap stocks. Moreover, it does not flee to cash during market downturns. This makes it volatile, which is reflected in its returns. It delivers admirably but falls much harder in market downturns. Even its current short-term returns show that it has lost more than the category average and its benchmark, BSE Smallcap.
Portfolio Insight
• The fund sticks to its mandate and holds close to 70 per cent in the less-than-Rs 3,000 crore market-cap segment and none in the above Rs 7,000 crore category.
• The fund remains fully invested with well over 90 per cent equity exposure at any given time.
• This fund has outperformed other mid- and small-cap funds by a huge margin, mainly due to its good stock picking techniques.
• TTK Prestige, Jyothy Laboratories, Zuari Industries and Coromandel International are some of the stocks in the portfolio that have yielded rich returns.
• Despite five fund managers in a little over three years, the asset management company's strong core fund management team has done a good job on the fund
