The Hindu Business Line : Sundaram BNP Paribas S.M.I.L.E: Hold

Investors can retain their units in Sundaram BNP Paribas S.M.I.L.E. The fund has made a swift recovery over the past eight months after brief phases of underperformance post the market correction in May 2006.

A one-year return of 87 per cent has placed it in the top quartile of the performance chart for diversified funds.

S.M.I.L.E has also stayed ahead of peers with a similar objective over the above period. However, as the current surge in performance has been recent, investors may watch for consistency over a few more quarters, before going for fresh exposure.

Suitability: Sundaram BNP Paribas S.M.I.L.E. is a multi-cap fund with a bias for mid and small-cap stocks. The fund defines small and mid-caps as stocks whose market capitalisation does not exceed the 50th stock (in descending order) listed on the NSE.

The fund’s mandate also allows it to hold up to 35 per cent in large-cap stocks; the reason: to allow the fund to sail through volatile market phases and also provide liquidity. The fund appears to have utilised this option well.

As of November 2007, 17 per cent of assets were invested in stocks in the over Rs 29,000-crore market cap segment (this being the current size of the 50th stock in the NSE). 45 per cent of assets were held in stocks with market cap of over Rs 10,000 crore.

While the large-caps have skewed the picture of average market capitalisation of the stocks, calculation of the median reveals a more mid and small-cap tilted average market cap of Rs 4,700 crore. The fund’s holding thus provides a portfolio of mid- and small-caps with some large-caps that are likely to capture any rally in that segment.

The fund is, therefore, suitable for investors looking for investments in small and medium equities, but not wanting to wholly undertake the volatility and risks involved in this segment. The fund’s open-ended nature also allows exit at any time.

The other products from the fund house, such as the Select Mid-cap and Select Small Cap, appear to be more focussed plays on the mid and small-cap segments than the multi-cap S.M.I.L.E.

Performance: S.M.I.L.E has returned about 87 per cent over the past one year, beating its benchmark S&P CNX Midcap by about 8 percentage points.. While the fund has stayed ahead of peers, Standard Chartered Premier Equity, a fund with bias for small and medium-sized companies, has outperformed S.M.I.L.E over the last one year.

There are few funds that are strictly comparable with S.M.I.L.E. Funds similar to S.M.I.L.E have either been recently launched or are at a draft stage. S.M.I.L.E has largely replicated its fund house calls on commodity, energy, capital goods.

Stocks such as Reliance Industries, Sterlite Industries and Reliance Capital have also ensured sufficient participation in the large-cap rally. Fedders Lloyd Corporation, Gemini Communication and Alphageo are some of the interesting small-cap picks.

The portfolio turnover may have been active, as only 13 of the current 64 stocks have been retained for over a year. Mr Krishna Kumar manages the fund.

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