The Hindu Business Line : JM Basic: Hold

Investors can hold on to their units in JM Basic. The fund's improved performance and solid stock-picks have helped the fund build a good track record. The fund has also broad-based its investment strategy from primarily holding energy stocks to investments in capital goods and the construction sector, thus accelerating returns.

Its return of about 45 per cent over the past year, places it among the top performers in the diversified funds category and among schemes with similar themes.

Further exposure can be avoided for now as the fund has only recently shown signs of improved performance. And, given the fund's short track record (after a change in objectives in 2005), it is yet to establish its record over various market phases.

JM Basic was launched in 1997 as a petro sector fund. In 2005, it changed its benchmark index from S&P CNX Petrochemical Index to BSE Basic Industries Index, to better represent its modified objectives.

Suitability: JM Basic is a theme fund with concentrated exposure to specific sectors, suitable for investors with a high appetite for risk.

The fund is at present heavy on capital goods, especially power equipment, with close to 60 per cent of the assets in this segment. This strategy has worked well for the fund, on the back of increased demand for power equipments in the country. The fund is less broad-based than theme funds such as DSPML T.I.G.E.R. With strong sector bias, the fund would require active tracking by investors for any sector moves.

Performance: JM Basic's one-year return is in line with its benchmark index but has beaten the 31 per cent return of BSE 200. Its return is also higher than DSPML T.I.G.E.R's return of 37 per cent over the above period. The fund's concentrated exposure to power equipment has clearly paid off well.

Further, the small asset size of Rs 11 crore has provided flexibility to enter mid- and small-cap companies. This however, can also prove to be a limitation as a very small asset base may constrain portfolio diversification. However, the strategy of concentrated exposure goes well with the asset size.

JM Basic's portfolio, however, declined more than most other broad-based indices during the market correction in May-June 2006, reflecting high downside risks arising from a concentrated portfolio. However, that the fund has beaten the BSE-200 57 per cent of the time on a rolling return basis from June 2005 till date indicates its ability to consistently beat the broad market.

Portfolio: Over the past 15 months the fund has slowly reduced exposure to the energy sector and instead added capital goods. Even among capital goods the fund has occasionally booked profits in stocks such as Bharat Bijlee and Emco.

As of April, the fund had about 60 per cent of its assets in stocks with market capitalisation of less than Rs 5000 crore. This is in contrast to about 30 per cent in the same market cap segment in May 2006.

The move to mid-cap stocks post market correction and reduced holdings in energy stocks over the year clearly contributed to the improved performance.

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