The Hindu Business Line : Magnum COMMA: Hold

Unitholders can stay with Magnum COMMA. The fund, which invests in commodity stocks including oil and gas, metals, cement and agro commodities, has performed reasonably well in a tumultuous period for commodity stocks. Its return over a one-year period is in line with its benchmark the BSE-200.

An in-line return under ordinary circumstances would be unsatisfactory, as it means that the fund has failed to compensate investors adequately for the higher level of risks assumed. However, BSE-200 may not be an appropriate benchmark, as such commodity stocks account for less than a fourth of the index.

Performance cannot be benchmarked against other funds either as there are no comparable peers. The fact that the fund has delivered market returns when most commodities have come under pressure is, however, commendable.

Suitability: COMMA is suitable only for those investors with an aggressive risk appetite. The fund offers an investment avenue for those who are unfamiliar with investing directly in the commodity markets.

While the portfolio is diversified, all commodities rarely move in tandem. The fund manager actively tracks commodity cycles and takes concentrated exposures in one or two sectors at a time. The fund tries to deliver value by taking advantage of sub-cycles, in which some commodities outperform, while others cool off.

Timing of entry in these sectors is, however, crucial as commodity prices and, by extension, commodity-related stocks are subject to wild fluctuations. Equally, booking profit at the peak calls for a willingness to leave some money on the table.

Misses on this front are likely to have an adverse impact on returns, which could fluctuate from year to year; investors should thus be active in their profit-booking. The fund should also not form part of your core portfolio.

Performance: Thanks to superior sector selection, the fund did not take too hard a beating during the market correction in May, when commodity stocks, particularly metals and sugar, came under severe selling pressure.

COMMA appears to have taken exposures to the right sectors in a timely manner. For instance, it has remained bullish on cement since its inception and has stepped up exposure to the sector. This has paid off, especially over the past three months, when cement stocks have been on fire.

Oil and gas stocks, which have sprung to life in recent months, also have a significant share in the portfolio. In the early part of the year, the fund was underweight in sugar, when the sector was still in fancy. Since then it has gradually pared exposures in the sector and has been relatively unaffected by the downslide in sugar stocks.

COMMA has delivered returns of about 24 per cent over the past three months, beating the returns of the average diversified fund.

Portfolio overview: The fund has about 25 stocks in its portfolio. The top ten stocks account for about 50 per cent of the total. Large-cap stocks account for half the portfolio. Additions from sectors such as chemicals and fertilisers have enhanced the exposure to mid-cap and small-cap stocks. Cement, metals and oil account for more than 50 per cent of the assets, with holdings in cement alone at 20 per cent.

Fund facts: Magnum COMMA was launched in August 2005. The fund has an asset base of about Rs 600 crore. The NAV is Rs 15.28.

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