The Hindu Business Line : JM Equity Fund: Hold

AFTER a rather indifferent performance in 2004, JM Equity has delivered an above-average return of 70 per cent over the past year. The improvement in performance could be largely attributed to a higher allocation to mid-cap stocks, although a shift in sector preferences also appears to have helped.

The fund's performance, however, trails that of several of its peers. While it has a similar risk profile to that of other diversified equity funds, the fund does not have a consistent track record. It has underperformed the benchmark indices during bear phases.

Given the sharp rise in equities in recent months and expectations of greater volatility in the months ahead, investors would be better off sticking to funds that are better-placed to weather a correction in the market. JM Equity may continue to be a part of your portfolio in light of its recent pick-up in performance, but should not be a significant part of your overall holdings.

Performance: After a poor performance in 2000 and 2001, it did better from 2002 onwards. It has however, invariably figured in the middle of performance rankings. Over the past year, its performance has picked up significantly.

The fund has capitalised on the rally in mid-cap stocks, explaining its index-beating returns. To put this in perspective, in July 2004, the fund had about 10 per cent invested in mid-cap stocks or stocks with a market capitalisation of less than Rs 2,000 crore. In contrast, about 50 per cent of its portfolio now comprises mid-cap stocks.

Stocks such as Praj Industries, McDowell, Mahavir Spinning and Geometric Software, which now figure in its top ten holdings, were absent from its portfolio a year ago. These stocks have delivered handsome returns over the past year.

The mid-cap focus has also caused a shift in sector preferences, which has worked in its favour.

The oil sector, for instance, was the top holding in July 2004. Oil stocks are now absent from the portfolio. The sector has incidentally, been an underperformer over the period.

Portfolio overview: The fund has a small asset base of about Rs 20 crore, which is invested in 25 stocks. It takes focused exposures to sectors.

The top three sectors — textiles, software and automobiles — account for less than 40 per cent of its total assets. Exposures to stocks are capped at 7 to 8 per cent. A few large-cap stocks figure in the top ten. These include Siemens, Mahindra & Mahindra and ITC.

Fund facts: The fund was launched in 1994. Dividend and growth options are available. The minimum investment amount is Rs 5,000

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