The Hindu Business Line : Sundaram BNP Paribas Select Focus: Invest

Investors looking to add a large-cap fund to their portfolio can consider exposure in Sundaram BNP Paribas Select Focus Fund. From being in the middle rung of the rankings list five years ago, the fund has of late consistently appeared in the top quartile of the performance chart of diversified equity funds

Suitability: Unlike a number of other funds from the Sundaram house, Select Focus has a more concentrated portfolio. A comparison with other large-cap funds too reveals the fund’s focussed approach. For instance, the top 10 stocks and top three sectors in Select Focus account for 65 per cent each of the assets as of September 2007.

Similar numbers for HDFC Top 200 reveal 42 per cent and 48 per cent holdings respectively.

While this relatively risky approach has paid off well, the fund may not be appropriate for investors looking to add large-cap funds with the objective of reducing their portfolio risk.

Performance: Select Focus is one of the few diversified funds that outperformed their benchmark in each of the last five years. It is also among the select few that beat their benchmarks consistently on a monthly rolling return basis. Among the purist large-cap funds, Select Focus ranks next only to HDFC Top 200 on a five-year basis.

With a return of 53 per cent the fund trailed HDFC Top 200 by 3 percentage points and marginally outperformed Kotak-30 and Franklin India Bluechip over the above period.

The fund has stayed ahead of these peers over the past three years. The concentrated approach seems to have worked in its favour since then. Its compact asset size allows this fund to hold limited stocks.

However, this aggressive style has also led to the fund taking greater hits than its benchmark and peers during market declines. This is reflected in the relatively steep declines the fund witnessed in the market correction in May 2006 and well as in July 2007.

Though Select Focus’ out-performance of its peers was not significant in earlier years, the last year has seen the fund staying way ahead of its peers. A look at the portfolio of the fund and its peers shows that sector and stock choices were the major distinguishing factors.

While energy, technology and financial services were the top choices of funds such as Kotak-30, HDFC Top 200, Franklin India Bluechip and Birla Sunlife Frontline Equity, Select Focus rode the rally in energy (including power equipments) and metal stocks. It was low on IT and completely exited the sector in recent months.

Its peers missed the commodity rally, but the fund benefited from stocks such as Sesa Goa and Sterlite Industries.

This apart, the fund replicated what appeared to be a house call on holding a number of Reliance group stocks (that led the last rally) including Reliance Capital and Reliance Energy.

The recent exceptional performance has been driven by the above factors that may not repeat themselves. Hence, investors should avoid setting high return expectations for the fund on the basis of its one-year performance alone.

Ms Srividhya Rajesh manages Select Focus.

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