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Shanthi Venkataraman

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Investors with a high-risk appetite can consider adding IDFC Premier Equity (formerly Standard Chartered Premier Equity) to their portfolios. The fund invests in small and medium-sized businesses in emerging segments or markets. This gives the portfolio a “venture-capital” feel and makes it riskier than even the typical mid-cap fund.

The fund lacks a long track record and, therefore, need not form part of one’s core portfolio. It could, however, complement other mid-cap funds in a portfolio and help boost overall returns. Investments can be planned in phases, as the fund is likely to encounter a greater degree of volatility than the average diversified fund.

Performance: IDFC Premier Equity has delivered a return of 26 per cent over the past year, beating benchmark BSE-200 by a whopping 17 percentage points. Its performance is equally impressive against the broader benchmark, the BSE-500.

The fund has withstood the turbulent period over the last six months and three months better than the average fund in the diversified equity category. It has shed about 28 per cent of its value since the beginning of the year, in line with the BSE-500. The net asset value has doubled since its launch in October 2005, while the BSE-500 has gained 75 per cent in absolute terms. However, Premier Equity has witnessed periodic bouts of underperformance and even sharp slides in value as several stocks in the portfolio enjoy expensive valuations and are more vulnerable to a meltdown.

Portfolio overview: The fund follows a bottom-up approach to investing. The latest portfolio does not reveal any sector biases. Investments are stock-specific and the fund takes measured exposures to stocks. The top ten stocks account for about 45 per cent of the portfolio. The latest portfolio, as on April 30, 2008, sported about 27 stocks.

The fund appears to favour stocks that have a niche within their category or are leaders in emerging categories. Within a mature sector such as FMCG, for instance, the fund has homed in on Jyothy Laboratories. Stocks such as Alphageo, Entertainment Network, Time Technoplast, Vimta Labs, Educomp Solutions, Onmobile Global and 3M India are stocks with leadership status in nascent segments. Many of these stocks have delivered significant returns over the past year and trade at premium valuations. In the near term, these stocks may remain range-bound as investors stay away from richly valued stocks.

However, from a long-term perspective, they continue to hold promise. Importantly, the ability to continue to pick such stocks ahead of the market would be key to sustaining the fund’s performance.

Premier Equity does not have a specific mid-cap mandate, but the fund is inherently mid-cap biased. It, however, periodically curtails inflows into the fund to ensure that it remains at a manageable size. This offers some protection to investors as it ensures that the fund sticks to its original mandate.

Fund facts: Post the acquisition by IDFC, there has been no change in the fund’s management. The fund is still managed by Mr Kenneth Andrade.

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