The Hindu Business Line : Birla Frontline Equity Fund: Invest

Birla Sun Life Frontline Equity Fund has been among the handful of equity funds that delivered better returns than the BSE Sensex over the past one year, amidst rather challenging market conditions. The fund has outpaced its peer group of large-cap funds (such as Franklin India Bluechip and Kotak-30) in 2006, after staying a few paces behind them until 2005.

The fund has a consistent track record, outperforming its benchmark in each of the four years since inception. Conservative investors looking for a large-cap fund that could deliver relatively stable returns may consider this fund for their portfolio.

Investors are advised to opt for the systematic investing route to this fund. The sustained rally in large-cap stocks has contributed to stiff valuations in this segment at present. In the event of a correction, the downside could be significant. SIP investing could help investors use any corrective phases to build exposures for the long term.

Birla Sun Life Frontline Equity Fund is a large-cap oriented equity fund, with over 90 per cent of the portfolio consistently invested in stocks with a market capitalisation of over Rs 5,000 crore.

Most diversified equity funds tend to feature a sizeable allocation to mid-cap stocks and switch allocations between market cap segments based on opportunities available. However, Birla Frontline Equity has remained focused on large-cap stocks through varying market conditions.

There are both advantages and disadvantages to the fund's stringent large-cap focus. The focus on large-cap stocks lends lower volatility and greater stability to the returns from this fund, making it suitable for long-term investors with a conservative bent of mind. However, on the flip side, the narrow rally in large-cap stocks over the past year has left valuation levels for these stocks at relatively rich levels.

Under the circumstances, mid- and small-cap stocks may offer good investment opportunities for investors. However, this fund, with its strict large-cap mandate would not be able to offer such diversification to its investors.

Returns in the large-cap stocks have been led by a very narrow set of stocks in 2006. The fund's performance over the past year (48 per cent) shows that it has capitalised on this trend. The fund has made use of volatile market phases to add sectors and stocks with a strong "growth" flavour. The addition of IT and frontline cement stocks in the June-September 2006 period made a significant contribution to subsequent performance. Additions to telecom and capital goods stocks in the last quarter of 2006 are also likely to have helped returns.

By end-December, capital goods, telecom, software and banks were the key sector exposures in the fund. The stock choices have been unadventurous, with each sector represented by the leading companies in that space. For instance, L&T and BHEL have been the key sector representatives for capital goods, while Bharti and Reliance represented telecom.

Fund facts: Birla Sun Life Frontline Equity Fund was launched in August 2002, by Alliance Mutual Fund, which subsequently sold its funds to Birla MF. The fund charges an entry load of 2.25 per cent and is managed by Mr Mahesh Patil.

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