Strategy
The fund, through its process of discovery, seeks to identify stocks whose prices are low relative to their historic levels, book values, earnings and cash flow potential. It exploits valuation gap and tries to unlock value over the long term. The fund focuses on discovering stocks that have high potential but are currently lying low at a discount to their inherent value.
Stock selection in this fund focuses on the merits of the specific stock unperturbed by the overall market trends. Since it takes a while to unlock the value from such stocks, investors need conviction and investment discipline to realise these gains. This fund invests in companies that are well managed, fundamentally strong, and chosen based on sound research. As these stocks are bought at a discount to their fair value, there is a margin of safety in the value portfolio.
Our View
The fund manager scouts for undervalued stocks available at attractive valuations in relation to their PE, BV or current/ future dividend. So it's not surprising to see relatively 'unpopular' stocks pack the portfolio. Neither is it surprising to see him move swiftly in and out of sectors wherever he sees value, or the lack of it. The basic investment strategy of this fund is of a value style. However, a mix of investing strategies has been employed in this fund — contra, dividend yield, low valuations and special situations.
The fund's value-investing approach has yielded rich dividends. Its long-term track record is impressive and it has fallen less than the category average in the current market upheaval.
The Verdict
Though it trounced the competition in 2009 and was a top-quartile performer in 2010, its value-based approach can be a letdown during bull runs. Since it tilts towards a mid- and small-cap portfolio, its downside protection is moderate. Its market cap tilt and value based approach make it mandatory to stay invested for the long term.
Portfolio Insight
• Financial Services, Metals, and Healthcare are the top 3 sectors. The stock choices within aren't typical.
• Top 10 stocks include some uncommon scrips such as Rain Commodities.
• There are some offbeat stocks such as FDC, Akzo Nobel India and eClerx Services.
• The fund focuses on mid caps (35%), small caps (35%) and large caps (30%).
• The equity exposure is always above 90 per cent.
