The Hindu Business Line : Magnum Global Fund: Hold

Unit holders can retain their investments in Magnum Global Fund. The fund has been a stellar performer over the last three years, but in recent months has seen a slowdown.

Huge inflows have caused the fund to hold significant cash levels in some months , which may have dragged performance amidst rising stock prices.

More importantly, the large asset base may constrain the fund’s ability to maintain its mid-cap focus. Therefore, investors may need to moderate their return expectations from the fund, after its stellar run over the past few years. Given the impressive track record, one can retain Magnum Global Fund.

Suitability: Magnum Global has the BSE 100 as its benchmark. However, much of its outperformance in the four-year bull rally has been driven by its bias towards mid-cap stocks. Since 2006, there has been a gradual increase in its allocation to larger stocks, which has helped performance in a large-cap-led rally.

But the fund continues to have a mid-cap bias, with about 60 per cent of the portfolio invested in stocks with a market capitalisation of less than Rs 5,000 crore. Magnum Global’s asset size has swelled 70 per cent from December last year to Rs 1,600 crore.

Funds with large asset bases often find it difficult to take a sizeable exposure in relatively illiquid mid-cap and small-cap stocks without impacting the market price itself. The investment universe gets restricted to stocks with sizeable market capitalisation, which limits such funds’ ability to deliver the very high returns possible from less known mid-cap stocks. Some of these problems appear to be reflected in Magnum Global’s portfolio over the last six months.

On the back of a rush of inflows, the fund has had to hold considerable cash. The environment too hasn’t been favourable for mid-cap stocks. Investors can evaluate the fund’s performance and strategy over the next couple of months before taking fresh exposures.

Performance: Magnum Global has delivered a return of 41 per cent over the past year, beating its benchmarkby a wide margin.

The fund also figures in the upper quartile of the one-year performance ranking charts. But much of this outperformance was achieved in the last quarter of 2006. Its returns so far in 2007, at 11 per cent, considerably lag that of its peers. The fund was only 65 per cent invested in equity in March. This figure has increased to close to 90 per cent as of its latest portfolio.

While high cash holdings have prevented the fund from fully participating in the rally, it has, however, protected it from downside during the market corrections in February and July this year.

Portfolio overview: The fund continues to favour manufacturing, construction and cement sectors. Top picks such as Thermax, Jaiprakash Associates and Crompton Greaves have helped boost performance. The portfolio now has a limited exposure to small-cap stocks.

The fund is managed by Mr Sanjay Sinha.

More Stories on : Mutual Funds | Recommendation

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page