The objective of this fund is to discover undervalued companies. It figures in our multi-cap category. The fund has outperformed its peers in the last four years.
Strategy: A contrarian strategy entails a long waiting period for stock picks to pay off, but this fund has managed it well. The fund invests in companies that offer stock-picking opportunities due to their being in a special situation--turnarounds, undervalued assets or acquisition/restructuring/merger candidates. As per the fund manager, there are no hard limits on the market cap or sector and the allocations are purely an the outcome of bottom-up stock picking.
The fund's portfolio composition shows a consistent 50-60 per cent allocation to large-caps, with 25-40 per cent parked in mid-caps and the rest in small-caps in recent times. The steady large-cap exposure contains portfolio risk. The fund usually avoids high P/E stocks.
A management change in 2010 seems to have contributed to the fund's good run. After starting out as a nearly R2,000 crore fund, the fund saw a fall in asset base during 2008-09, having since stabilised. The fund is currently mid-sized at R837 crore.
Performance: The fund has outpaced its benchmark by nearly 20 per cent since January this year, with a one year return of 52.4 per cent. Three-year returns at 23.4 per cent place it a creditable 7 per cent ahead of the benchmark and 3 per cent ahead of its category. The re-rating of severely beaten-down industrial and cyclical stocks has obviously worked in the fund's favour in the recent rally. This has led to an improvement in ratings from 3 stars and below until 2010 to 4-5 stars in the last one year.
What we don't like: The 'special situations' mandate may work best in depressed markets. Stock-picking opportunities for such a fund may shrink as valuations head higher.
Why invest? Very few contrarian funds have managed to deliver good performance but this fund is an exception to safely bet on.
1.ICICI Prudential Tax Plan
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3.HDFC TaxSaver
4.DSP BlackRock Tax Saver Fund
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6.Franklin India TaxShield
7.Canara Robeco Equity Tax Saver
8.IDFC Tax Advantage (ELSS) Fund
9.Axis Tax Saver Fund
10.BNP Paribas Long Term Equity Fund
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