The Hindu Business Line : Birla GenNext Fund: Switch

Those who invested in the new fund offer of Birla India GenNext Fund may consider switching their holdings to Birla Sun Life Buy India Fund, which has a superior long-term track record. The latter capitalises on a theme that is similar to Birla GenNext in that it invests in companies that benefit from strong consumption patterns.

Birla GenNext's performance, influenced by sector choices, has lagged market returns since its launch six months ago. The performance of Buy India has been impressive over the past year. It also sports a more promising portfolio.

GenNext seeks to invest in sectors that benefit from the increasing disposable incomes and better lifestyle of the Indian consumer. This includes FMCG, pharmaceuticals, tourism and hotels and retailing. Such a theme will mean investing in growth stocks with a long-term orientation. Valuations are typically higher and the fund is not suitable for a conservative investor.

Portfolio overview: GenNext takes concentrated exposures to sectors and stocks that increase its risk profile, compared to a typical diversified fund. The top three sectors account for about 50 per cent of its assets. Holdings in each sector are, however, across several stocks.

The fund appears to be most bullish on the housing boom and its trigger effect on related sectors. This is why it chooses to be overweight on banking and housing finance companies, which benefit from lending to the housing sector.

The sharp focus on finance stocks, however, appears to be an unusual choice for a fund that wishes to play the lifestyle theme. While they are beneficiaries of a consumption boom, finance stocks fit well with a value portfolio. In contrast, retailing, a direct beneficiary of increased spending, is a rather insignificant holding, Trent being the only stock it holds.

Finance stocks also happen to have under-performed the market over the past year. This could explain the fund's lacklustre performance.

The FMCG sector, a more obvious choice, does figure prominently in the portfolio, accounting for 13 per cent of the assets. Unconventional picks such as Heritage Foods and Eveready Industries stand out. A larger exposure to the sector may have perked up returns considerably.

: Birla GenNext was launched in August 2005. It has an asset base of Rs 350 crore. It offers dividend and growth options. The minimum investment is Rs 5,000.

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