The Hindu Business Line : DBS Chola Hedged Equity: Hold

Investors can retain their units of DBS Chola Hedged Equity Fund. In little over a year since its launch, the fund’s performance stands out, its returns bettering both its benchmark CNX Nifty and category average for diversified equity funds. This assumes significance as the past year has been a roller-coaster ride for mutual funds, especially for the new funds. On that note, the fund has done better than even some of the equity funds that were launched last year, thanks to the its active hedging policy.

In a highly volatile yet range-bound market, this policy and its large-cap bias have proved a worthwhile proposition. However, given its relatively short-track record and rather low assets under management, it may not be advisable to take fresh exposure to the fund now.

Performance: DBS Chola Hedged Equity was launched on the premise of providing long-term capital appreciation over market cycles, by using derivatives to iron out the impact of market volatility. This may have helped the fund deliver better performance than its benchmark and category average on a one-year basis. It has returned a negative 2.5 per cent as against the 6 per cent decline in CNX Nifty and 13 per cent decline in category average.

But its performance during the interim three-month and six-month periods has just about been average, which suggests that its strategy of using derivatives to hedge its long portfolio might not have played out quite as well during shorter time-frames. It is not prudent to judge the fund’s performance over such short time-frames. But derivatives are, by their very nature, short-term instruments and hence are likely to contribute to the fund’s performance only over such time-frames.

On a monthly rolling return basis over the past 16 months, while the fund has outpaced its benchmark only half the number of times, it has returned an average 3 percentage points higherduring those months. Better still, in the months it lagged its benchmark, the average fall was contained to just 2 percentage points.

Portfolio: As of August, the fund held 50 stocks and was invested across 19 sectors. The top three sectors accounted for 31 per cent of the portfolio. In the last one month, it has pruned its exposure in telecommunication, auto and engineering stocks and has upped exposure in pharma, refineries and oil drilling and power generation.

The fund’s cash holding fell from 23 per cent of assets in July to 18 per cent in August.

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