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Sunday, Oct 09, 2005

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DSP ML T.I.G.E.R Fund: Hold

Shanthi Venkataraman

DSP ML T.I.G.E.R (The Infrastructure Growth and Economic Reforms) Fund, which seeks to invest in stocks of companies that would benefit from economic reforms and an infrastructure thrust, has delivered a return of close to 70 per cent over the past year.

There has been a significant pick-up over the past three months, as stocks in the engineering and construction sectors — now a focus area for the fund — have galloped ahead of the rest.

Investors can, however, retain their holdings.

As a theme-based fund, it comes with a higher risk profile than a typical diversified fund; such funds are often relegated to the bottom of the performance charts when the theme runs out of steam. Although DSP ML T.I.G.E.R has a more diversified portfolio, a slow pace of reforms could limit choice and hurt the performance of the fund.

Theme-based funds also require an active investment strategy rather than "buy-and-hold" investing.

The fund is yet to build up a track record over a long period and across different phases of the market. It should, therefore, form only a small part of a portfolio of funds.

Although it was launched shortly after the crash of May 17, 2004, the fund's performance did not suffer too much, as the market had latched on to the theme of construction and banking stocks; these were the fund's top preferences at that time. It has been a good run for stocks in these sectors; stocks in the portfolio now trade at a price-earnings multiple of 21. Sectors such as media, textiles and fertilisers also figure in the portfolio, conforming to the fund's theme.

The fund has about 25 per cent of its assets invested in the engineering sector. Engineering, finance and construction are the top three sectors of the fund.

There are about 60 stocks in the portfolio, with holdings in any stock restricted to about 4 per cent.

The high level of diversification could work against the fund in a bull market. The fund is invested predominantly in large- and emerging large-cap stocks.

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