The Hindu Business Line : Magnum COMMA Fund: Invest

For investors who already hold equity funds in their portfolio, SBI Mutual Fund’s Magnum COMMA Fund appears to be a good option to diversify. The fund focuses on stocks of commodity companies and thus its returns are likely to be linked to moves in commodity prices. The focus on commodity stocks also results in this fund’s portfolio being substantially different from that of other equity funds.

Suitability: Stocks of commodity companies tend to outperform commodity prices during buoyant phases in the commodity cycle, as earnings could get a disproportionate boost from favourable prices. However, on the flip side, a reversal in commodity prices could lead to sharp reversals in earnings and thus stock prices.

Given that commodity markets, by their very nature, tend to be quite volatile, returns from this fund too can be quite volatile. But investors should note that taking exposures to commodities through this fund may be less risky than directly playing the commodities market, as this fund has the opportunity to diversify across several commodities at the same time (agricultural as well as industrial).

Performance and strategy: After a sedate performance in initial months, Magnum COMMA Fund has improved its record over the past year. The fund’s returns since inception, at about 35 per cent, trail the BSE 200. But the fund figures in the top quartile based on one-year returns within the diversified category, with one-year returns of about 49 per cent. Performance has picked up pace in the recent month as well as quarter, driven by the appreciation in commodity stocks.

Within the commodity sectors, the fund has invested mainly in leading companies within each sector. For instance, Reliance and ONGC represent the refinery exposures, Tata Steel and JSW Steel the ferrous exposures and so on. This has resulted in a bias towards large cap stocks in the portfolio. These exposures also explain the fund’s out-performance over the past six months.

In terms of sector choices, the fund has consistently leaned towards steel, metals and oil refining sectors over the past six months, which have seen a sharp re-rating in the recent weeks.

Despite the buoyancy in commodity stocks and in the overall markets over the past month, these sectors remain at relatively lower valuation levels relative to the overall markets. Therefore, the fund continues to be a good investment option at this juncture

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