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Launched in October 2004, SBI Magnum Sector Umbrella – Emerging Businesses Fund has been ranked CRISIL Fund Rank 1 (in the top 10 percentile of its peer group) in the CRISIL Mutual Fund Rankings over the past three quarters in the small and mid-cap equity funds category. Further, the fund has been in the top 30 percentile (CRISIL Fund Rank 1 or CRISIL Fund Rank 2 cluster) over the past seven quarters. Thus the fund has been a consistent performer in this category.
The investment objective of the fund, managed by Rama Iyer Srinivasan, is to participate in the growth potential presented by various companies that are considered emergent and have export orientation/outsourcing opportunities or are globally competitive. The fund may also evaluate emerging businesses with growth potential and a domestic focus.
The fund has maintained a growth-oriented investment style, with the portfolio tilted towards small- and mid-cap stocks comprising 81 per cent of its equity portfolio in the past three months. A higher exposure to small- and midcap stocks helps in generating superior returns while increasing volatility and liquidity risk for the fund. The 19 per cent investment in large-cap stocks lends some extent of diversification to the portfolio in terms of capitalisation.
The fund has outperformed its benchmark (BSE 500), CNX Midcap Index and the category average across one, two, three, five and seven years. The higher returns of 10.29 per cent (CAGR) over a seven-year period are in line with investment horizon for this asset class which rewards investors who hold funds for longer time frames. Over the past year, the fund has delivered a positive return of 8.9 per cent vis-à-vis negative 14.66 per cent, 16.01 per cent and 7.03 per cent of the benchmark, CNX Midcap Index and category average, respectively. The fund's superior riskadjusted performance is evident from its Sharpe ratio of 0.15, in the past year, compared to negative 1.01 for the category.
An investment of ~1,000 in the fund since its inception would have grown to ~4,365 as on June 5, 2012, yielding a CAGR of 21.23 per cent. A similar investment in the benchmark and category would have grown to ~2,634 and ~3,438, respectively – a CAGR of 13.49 per cent and 17.51 per cent, respectively.
An SIP analysis also reveals the fund has substantially outperformed the benchmark over the five and seven-year periods analysed.
Portfolio analysis The fund has dynamically managed its equity exposure depending on the market conditions. During the past year when the markets were volatile, the fund reduced its equity exposure to an average 88 per cent from an average 93 per cent maintained a year ago. A similar strategy was followed by the fund during the economic turmoil in 2008 where it reduced its equity exposure to an average 90 per cent in the December 2008April 2009 period.
The fund is holding a relatively concentrated portfolio as compared to the category, both at the sector and stock level. The top five stock holdings of the fund formed 34 per cent of its portfolio against 24 per cent for the category, whereas the top five sector holdings constituted 57 per cent vis-à-vis 52 per cent for the category over the past year. At the stock level, the fund has held an average 29 stocks in its portfolio, as against 49 for the category over the past three years.
In terms of sectors, the fund's higher exposure to consumer non-durables and lower exposure to oil and gas (0.13 per cent versus 4.79 per cent for benchmark) have helped the fund generate superior returns over the past year compared to the benchmark. The fund has added software and power while exited fertilisers over the past five months. The fund has not maintained any exposure towards the construction sector over the past year. It has gradually reduced its exposure towards construction from an average 17.5 per cent between January 2008 and March 2009.
Key stock selections, such as Page Industries, Hawkins Cookers, Gillette India and Agro Tech Foods have helped the fund generate higher returns than the category average in the past two years.
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