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Sunday, Jan 23, 2005

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SBI Magnum Equity: Switch

Suresh Krishnamurthy

INVESTORS in SBI Magnum Equity can consider switching a portion of their exposures to SBI Magnum Multiplier Plus and SBI Magnum Contra. SBI Magnum Equity has done better than its benchmark BSE-100 over the years. The risk-adjusted performance of funds such as SBI Magnum Multiplier Plus and SBI Magnum Contra has, however, been far superior.

In addition, the positioning of Magnum Multiplier Plus and Contra are more appealing from the perspective of expected future returns. SBI Magnum Equity is positioned as relatively low-risk with larger exposures to large-cap stocks. SBI Magnum Contra is at the farther end of the spectrum having a mandate to hold stocks that are out of market favour and therefore more risky.

SBI Magnum Multiplier Plus is expected to invest a substantial proportion of its portfolio in mid-cap stocks. Going forward, a portfolio with lower exposure to Magnum Equity and higher exposure to Contra and Magnum Multiplier Plus may deliver better returns.

Performance: Like a number of SBI Mutual Fund schemes, Magnum Equity has come back strongly after the debacle in 2000 and 2001. The performance of the scheme in 2002, 2003 and 2004 was better than that of its benchmark BSE-100.

In 2004, SBI Magnum Equity registered returns of 18.4 per cent, marginally better than the gain in the BSE-100. SBI Magnum Multiplier Plus and SBI Magnum Contra recorded substantially better returns. Over a longer period of three and five years, too, the other two funds registered better returns than SBI Magnum Equity.

In terms of risk, SBI Magnum Equity is positioned to be relatively low-risk compared to the other two funds. In practice, however, it has been difficult to sustain the risk at a low level. Specifically, the returns from SBI Magnum Equity have been as volatile as that of Magnum Contra. This may be due to the superior portfolio management in Contra Fund than any inferior performance of Magnum Equity relative to its benchmark.

Portfolio: SBI Magnum Equity was almost fully invested at the end of December 2004. The fund had 32 stocks in its portfolio sporting a diversified profile, both in terms of its stock and sector holdings.

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