The Hindu Business Line : JM Hi Fi Fund: Hold

While its underlying theme is promising, the fund's ability to capitalise on it by investing in emerging opportunities may be crucial to better performance.

Investors in JM Hi Fi Fund can retain their holdings. The fund's return of 29 per cent over the last six months has marginally beaten its benchmark S&P CNX Nifty. Launched in April 2006, JM Hi Fi is a theme fund that seeks to invest in companies that can benefit from the government policies in housing, infrastructure and financial services sectors; the last-named being a participant in the growth of the other two sectors. While most other infrastructure funds primarily invest in pure infrastructure plays or capital goods, JM Hi Fi has a relatively more diversified objective to invest in real estate and financial services.

Suitability: A theme fund calls for an active investment strategy and requires tracking the sectors in which the fund aims to invest. JM Hi Fi, with a theme that is dependent on policy initiatives to propel the growth of companies it plans to invest in, does carry a higher degree of risk and uncertainty than diversified equity funds. The fund's theme, however, holds potential to capitalise on the infrastructure and real estate growth in the country. Investors can avoid fresh exposure to the fund now and ensure that it forms only a small percentage of their holding.

Performance: JM Hi Fi's return of 12 per cent since launch still lags its benchmark. However, on a monthly return basis in the last six months, the fund outperformed the Nifty in four out of six occasions. The fund has lagged most of its peers, including PruICICI Infrastructure and UTI Infrastructure. A lower holding by JM Hi Fi in the engineering sector compared to similar theme funds may have contributed to the underperformance. UTI Infrastructure, for instance, held 20 per cent in engineering as of November 2006, against just 9 per cent by JM Hi Fi.

JM Hi Fi's portfolio does not appear to be heavy on real estate. The fund currently holds 7.7 per cent in a single stock — Unitech — and recently added Sobha Developers. It also appears to churn stocks in this sector more frequently. Its earlier holdings, D. S. Kulkarni Developers and Mahindra GESCO were sold in less than six months. While these stocks did return well, quasi-real estate plays such as Taj GVK Hotels and Indian Hotels did not stay too long in the portfolio and under-performed during the holding period.

At present, there are not too many quality real estate plays in the listed space to choose from. This may be the reason for the fund's selectiveness. With a stream of IPOs lined up for 2007, a good number of them from big players in the industry, the fund may have better options to choose from. The entry and exit points also need to be well-timed, as real estate has traditionally had its business cycles. Therefore, while the theme underlying this fund looks promising, the fund's ability to capitalise on the theme by investing in the emerging opportunities in this space may be crucial to a better performance.

Portfolio: JM Hi Fi has invested 50 per cent of assets in stocks with a market cap of over Rs 5,000 crore. Emco, McNally Bharat Engineering and Orient Paper & Industries are stocks in the portfolio with a market cap of less than Rs 1,000 crore. Mr Sandeep Neema manages the fund.

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