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It's that time of the year when one looks back and sees how funds performed during the last 12 months. In 2006, it was infrastructure funds that hogged the limelight. Though we have not looked at the returns on the last day of 2007, we have come pretty close to it.
We looked at the best performing equity funds as on December 30, 2007. We did not restrict ourselves to any particular sector. Neither did we stick to diversified equity options. We looked at all the equity funds and selected those who one-year returns were over 100 per cent.
None of the pure infrastructure funds featured. But we came up with a motley bunch of three funds. A sector fund (Reliance Diversified Power Sector), a tax-planning fund (Taurus Libra Taxshield), and a fund focused on energy and construction (JM Basic) all found their way here.
It goes without saying that we don't know how they will fare in the coming year. This piece is not about predictions but has more of a nostalgic stance. After all that's what we all take at the end of a year.
1. Reliance Diversified Power Sector
Specialty Equity
Fund Manager: Sunil Singhania
Tenure: Since launch
Launch: July 2004
AUM: Rs 4,937.47 crore
Expense Ratio: 1.73 Returns
1-year: 125.98%
Year-to-date: 122.04%
Top stocks
1) Jindal Steel & Power (5.48%)
2) Reliance Energy (5.44%)
3) Jai Prakash Associates (5.09%)
Top sectors
1) Basic/Engineering (22.65%)
2) Energy (20.46%)
3) Construction (7.08%)
Returns data as on December 30, 2007.
Portfolio data as on November 2007.
This fund obviously cannot be as broad-based as a typical diversified equity fund, but neither is it as concentrated as an archetypal sector fund.
Here's why. The fund managed has the leeway to invest up to 35 per cent of the portfolio in stocks that are not related to power (eg: ICICI Bank). And within the power sector, he need not be restricted to pure power plays. He can also consider companies where a major part of the valuation comes from the power business.
For instance, this could include power construction (Jai Prakash Associates, Punj Lloyd), rural electrification (Subhash Projects & Marketing) and power manufacturing (Kirloskar Brothers). Energy companies also find a place here (eg: ONGC).
That's not all. The fund manager has the flexibility to be entirely invested in any of the three asset classes: equity, debt and cash. And within his equity allocation, there is no market-cap bias.
It's hard to argue with the numbers. This fund has done exceptionally well and has been credited with some good picks. But valuations in the power sector are currently high.
But on the flip side, the universe of power companies is rapidly expanding. Not only have there been many IPOs in the past few years but a number are in the pipeline too.
A good fund if you want to tap into the power sector. But should the sector go through a bearish period, you really cannot expect the fund to escape that phase.
2. Taurus Libra Taxshield
Tax Planning Diversified Equity
Fund Manager: Nitish Ojha
Tenure: Since April 2007
Launch: March 1996
AUM: Rs 8.62 crore
Expense Ratio: 2.03 Returns
1-year: 109.52%
Year-to-date: 109.40%
Top stocks
Reliance Capital (26.80%)
IDFC (12.57%)
JK Cement (8.12%)
Top sectors
Financial Services (46.38%)
Construction (12.20%)
Metals & Metal Products (10.32%)
Returns data as on December 30, 2007.
Portfolio data as on November 2007.
Taurus Libra Taxshield climbing up the performance ladder to take No 2 slot has taken everyone by surprise. Last year, it was the worst performing equity linked savings scheme (ELSS).
This one is known for its dangerously concentrated portfolios. In its history of over a decade, the number of stocks in its portfolio has never gone above 20 (February 2006) and it has actually dipped to as low as nine (December 2004).
The obvious fall out of such a low number of stocks will be the allocation to each stock. In November 2007, the top 10 stocks accounted for 81 per cent of the portfolio.
What makes it all the more risky is the tilt towards small- and mid-caps. Ironically, as these stocks are on a roll, the fund manager has increased his exposure to large caps.
In March 2007, it was around 29 per cent. The new fund manager took over the following month and in November, the large-cap exposure had risen to 44.49 per cent.
Even within his sector allocation, the fund manager lives precariously. He has no allocation to automobiles, basic/engineering, chemicals, consumer non-durables, diversified, textiles or energy.
While the average allocation amongst its peers to textiles is also negligible at 1.54 per cent, it stands at 12.75 per cent towards energy and 11.58 per cent in basic/engineering. But in construction and financial services, his exposure is way ahead of the average allocation. At 46.38 per cent, financial services occupies almost half his portfolio.
A dangerous offering undoubtedly.
3. JM Basic
Diversified Equity
Fund Manager: Asit Bhandarkar
Tenure: Since December 2006
Launch: June 2005
AUM: Rs 1,025.80 crore
Expense Ratio: 2.30 Returns
1-year: 108.81%
Year-to-date: 106.26%
Top stocks
PSL (8.15%)
Bharti Shipyard (7.41%)
Hindustan Construction Co. (7.14%)
Top sectors
Construction (24.80%)
Metals & Metal Products (24.54%)
Diversified (14.59%)
Returns data as on December 30, 2007.
Portfolio data as on November 2007.
This fund has quite a history. Launched as a petroleum sector fund, it changed its benchmark in June 2005 when it was re-launched. But it shot to prominence soon after Sandip Sabharwal took over as CIO, equities, JM Mutual Fund in December 2006. At the same time, Asit Bhandarkar was appointed as the new fund manager.
The result was dramatic and in 2007, it kept topping the performance charts. For the week ended June 1, 2007, it was the best diversified equity fund performer across five time periods (1-week, 1-month, 3-months, 6-months, 1-year).
When Sabharwal inherited the portfolio, it was a very concentrated offering with a large-cap bias. The first change he made was to tinker with the investment mandate.
He broadened it to include various sectors including energy, petrochemicals, power generation, power distribution, electrical equipment suppliers, metals, construction material and construction.
Once that was done, he had the leeway to increase the number of stocks. It moved from just 12 (November 2006) to 21 (May 2007) and was at that number till last count. Hindustan Construction, IVRCL Infrastructures & Projects, Nagarjuna Construction, Action Construction Equipment and Punj Lloyd were all the fresh stocks under the new mandate.
Large-cap holdings were reduced and Bharat Electronics, Siemens and Suzlon made way for smaller companies like Bharti Shipyard, Cummins India, Greaves Cotton, Indotech Transformers, Kalpataru Power Transmission, MIC Electronics, Thermax and Apar Industries.
The return certainly justifies the changes. A good fund for those with a moderate to high risk appetite.
The numbers may be impressive (for now), but looking at its performance history, one can never be too sure.
