The Hindu Business Line : Birla Sunlife Frontline Equity: Invest

Investors can buy units of Birla Sunlife Frontline Equity Fund (BSL Frontline) considering its long-term track record in delivering returns and its strong blue-chip stocks orientation. BSL Frontline has, over one-, three- and five-year periods, consistently beaten the returns generated by its benchmark BSE-200.

Though the fund has delivered steady returns over the last few years and has been among the top quartile of diversified funds, it has fallen a little behind peers such as Kotak-30 and Sundaram Select Focus over three- and five-year periods. But a large-cap (greater than Rs 7,500 crore market-cap) focus (especially on blue-chip stocks) suggests that the fund has placed its bets on firms with relatively better earnings visibility. The fund may be suitable for investors looking for large-cap exposure and steady, rather than superior, returns.

Performance: BSL Frontline has a five-year track record of consistently beating its benchmark. The annualised return of the fund during this period is 30.2 per cent, placing it in the top quartile of diversified equity funds. The fund’s three-year returns also compare favourably with peers.

During market rallies in the last few years, the fund outperformed its benchmark, though not by more than 3-4 percentage points. But BSL Frontline contained downsides during market downturns in 2004, 2006 and even in the prolonged correction this year. Its NAV has fallen 16.9 per cent in the past year, while its benchmark fell nearly 20 per cent during this period.Investors can take exposure through systematic investment plan for rupee cost averaging during such slides.

Portfolio strategy: With a large-cap orientation, BSL Frontline may not have been able to benefit from rallies in mid- and small-cap stocks the past year.

In the current environment, larger companies with reasonable earnings visibility may be better bets than the mid- and small-cap companies. However, even within the large-cap space, it may be crucial for the fund to find the right sectors to provide above-average returns.

In the past year the fund took concentrated exposures to sectors such as capital goods, banks and construction. This may have helped it benefit from the uptrend in these sectors.

These sectors subsequently witnessed the sharpest of corrections. While exposures are now significantly reduced, counter-intuitively, banking and financial services continue to be the top sectors held. The fund perhaps, expects a peaking out of the interest rate rally that could perhaps ease the pressure on these stocks.

The more recent portfolios have had more than 15 per cent in money market instruments, which, while containing downside, may not enable full participation during market upswings.

While energy stocks continued to be favoured with a higher weight, exposure to defensive sectors such as software, pharma and telecom services increased.

Fund Facts: The NAV per unit of the growth option is Rs 53.6. Mr Mahesh Patil manages the fund.

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