The Hindu Business Line : Tata Select Equity Fund: Hold

Investors can retain their units in Tata Select Equity Fund. With a return of 38 per cent over the past year, the fund has outperformed many diversified equity funds and has been active in rejigging its exposure between sectors that form part of its investment universe.

However, the fund’s return over the past year has not compensated for the risk it has undertaken, in terms of concentrated exposure to sectors that hold potential. Fresh exposure can, therefore, be avoided for now.

Suitability: Tata Select Equity, despite its mandate to invest in a wide cross section of sectors, appears to sport a thematic profile as its takes concentrated exposure to select sectors at a time. Nearly 25 per cent of its assets, fo r instance, are invested in the engineering segment. Such sectors as consumer goods, banking and finance are currently excluded from its investment horizon.

While the fund may have more sectors to choose from than theme funds, a number of funds in the infrastructure and engineering space have increasingly broad-based their options, as a result of which Tata Select Equity’s risk profile may not be too different from these peers. Tata Select Equity may, therefore, not be suitable for conservative investors.

Further, while it has delivered well in relation to other diversified funds and can be held on to, theme funds may be better suited for any fresh exposure by investors looking for funds with risks compensated by high returns.

Performance: Tata Select Equity has beaten its benchmark Sensex return of 28 per cent over the past year. The fund has outperformed its index in each of the past five years, except 2005-2006. This may be attributed to the market correc tion, where stocks in capital goods (the highest holding in the fund’s portfolio) took a hit. Further, the fund’s higher exposure to mid- and small-cap stocks, and the strategy of staying away from debt, also contributed to the higher decline.

However, since the launch of a number of infrastructure and capital goods theme funds, Tata Select Equity appears to have lost the edge of being a focussed play on select sectors. It has under-performed most of the theme funds, such as DSPML T.I.G.E.R and its peer from the same house — Tata Infrastructure (which returned 47 per cent over the past year).

The out-performance by peers may be attributed to holding more large-cap engineering stocks that yielded superior returns in that segment. Further, Tata Select Equity’s holding in a number of other sectors (such as IT) that underperformed may also have contributed to the fund lagging its peers.

Portfolio: Large-cap stocks with a market capitalisation of over Rs 10,000 crore account for less than 30 per cent of the fund’s assets. Bharti Airtel, BHEL and Thermax are some of the stocks that have resulted in manifold gains for the company as a result of a buy, accumulate and hold approach.

Tata Select Equity’s net asset value under the growth scheme is Rs 56.68.

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