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S. Vaidya Nathan

INVESTORS in the Magnum FMCG Fund can cut exposures and switch to diversify funds with a good track record. The fund has turned in an unimpressive performance since its launch in August 1999. The recent run-up in the prices of stocks of consumer product companies has pushed the NAV to about Rs 8 per unit. Investors can cash in on this uptrend.

This may mean profits for those who entered the fund in the last two years, and a loss of 20 per cent for those who invested in the initial offering at Rs 10 per unit.

It may be better to pull out funds, even it means taking a loss, and make them work for you in diversified funds. Investors can look at funds with a good long-term track record, such as Prima, Bluechip, HDFC Equity, and HDFC Tax Saver as options.

Staying with an FMCG sector-specific fund may not generate adequate returns, as their performance over the past three years has shown. Even big-ticket companies may not move in tandem with each other, and this tends to drag down the price performance of a portfolio of FMCG stocks.

The two bigwigs, ITC and Hindustan Lever, have not always moved in tandem. As a result, positive trends in one tend to get cancelled out by the other.

Most FMCG stocks now trade at the higher end of the valuation spectrum, after the recent uptrend. Going forward, this may limit the scope for valuation gains. In this backdrop, investors may be better off in moving away from FMCG sector-specific funds. In this context, cutting exposures in Magnum FMCG Fund may be appropriate.

Suitability: Sector-specific funds usually carry a higher degree of risk than diversified equity funds. FMCG funds are no different. This is despite their focus on stocks that are perceived to be defensive investment options.

The returns have been woefully inadequate to justify the kind of risks involved. The prospect of such funds providing a meaningful source for diversifying a portfolio has also become an unenticing one. Irrespective of risk preferences, investors can consider trimming their holdings in the fund.

Portfolio overview: The following are the salient features of the portfolio over the past six months:

The fund continues to be small-sized with an asset base of about Rs 14 crore at the end of August 2003. It has remained fully invested, with close to 95 per cent of assets in equities. But cash position has increased to about 9 per cent at the end of August.

ITC, Hindustan Lever and Godrej Consumer Products are the cornerstone of the portfolio, accounting for a third of the assets.

The weight allocated to the Hindustan Lever stock has fluctuated between 13 per cent and 22 per cent. It had pared exposures in the stock from 18 per cent in early 2003 to 13 per cent in April.

Subsequently, it ramped up exposures to 22 per cent in May, and scaled it down sharply by end August (12.6 per cent). The sharp spurt in the stock price has been used to book profits on a sizeable part of the holdings.

The fund has stepped up exposures to stocks such as Himatsingka Seide, Dabur, Balarampur Chini Mills, Blue Dart and Gillette India.

Mid-cap stocks now largely dominate the portfolio. This has aided in the improvement in NAV as mid-cap stocks, cutting across sectors, have had a re-rating.

: Magnum FMCG Fund was launched in August 1999 as part of the Magnum Sectors Funds Umbrella. The minimum investment is Rs 2,000 per month. The entry load is 1.75 per cent per annum. There is no exit load. The manager is Mr Sandip Sabharwal.<137>

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