The Hindu Business Line : Fidelity Special Situations: Hold

Units in Fidelity Special Situations (FSS) can be retained. The fund has made a mark in the short period since its launch this April. FSS has delivered a return of about 25 per cent over the last three months, placing it among the top-ranking funds during this period.

As its name implies, the fund invests in stocks of companies faced with special situations, ranging from performance turnaround to mergers, to those foraying into new businesses. It also homes in on value stocks or stocks that are temporarily out of favour, similar to funds with a value-investing or contrarian approach.

Given the fairly wide gamut of stocks that fall into these categories, the portfolio mirrors a diversified fund, with as many as 70 stocks. Unlike its diversified counterpart Fidelity Equity, however, the fund is more aggressively managed.

It could, from time to time, take concentrated positions in select sectors or stocks, depending on the fund manager's conviction about a particular idea. Concentrated positions are risky.

A stock or sector may remain out of fancy for longer than the manager expects and large holdings could drag returns. But the payoffs could be high if the manager gets his call right.

FSS had the opportunity to build its portfolio at a time when several stocks were at attractive valuations, post the steep correction in the market. Within two months of its launch, the fund was already fully invested in equity, with the banking sector accounting for the lion's share of the holdings.

Banking stocks were underperformers for most of the bull rally and took a worse hit in the market downturn. The choice of the sector has, however, paid off, with banking stocks staging a smart rally in the past three months. Software was the other prominent sector in its portfolio, which too has performed well.

While its initial performance has been encouraging, investors can wait for the fund to establish its track record before contemplating fresh exposure. And they should ensure that it is not a core part of their holdings.

The portfolio sports a blend of large-cap and mid-cap stocks. The top ten stocks account for about 40 per cent of the assets. The banking sector accounts for about 30 per cent of the portfolio. Holdings in the sector are, however, spread over several stocks.

Fund facts: Fidelity Special Situations was launched in May 2006. It has an asset base of Rs 2,000 crore. The fund manager is Mr Rajesh Singh.

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