The Hindu Business Line : Sundaram BNP Paribas Leadership: Hold

Investors can retain their units in Sundaram BNP Paribas India Leadership Fund given the potential that its current portfolio holds. The fund’s one- and three-year performances are not heartening despite its moving away from mid and small-cap stocks due to the changed market environment in 2008.

A concentrated portfolio pitches it midway between a diversified and sector fund. A higher exposure to select sectors may be a good option in a bull market but this strategy steps up the risk profile of the fund during volatile markets such as the one witnessed over the past year.

Over a three-year period, the fund trailed its benchmark, the S&P CNX Nifty by six percentage points. The fund’s propensity to move into cash position was reflected in October 2008 when it held as much as 34 per cent of the assets in cash.

However, even this strategy did not aid a significant outperformance, as the fund has remained below the top quartile based on 3-year as well as 1-year returns. However, the fund’s better performance over the past month (21 per cent gain against the Nifty’s 18 per cent rise), offers comfort that returns may pick up on a sustained rally.

Some investors prefer large-cap stocks due to their relatively stable earning potential and ability to turn around faster than mid and small-cap stocks. Such investors may be better off holding DSPBR Top 100, given its better recent performance.

Portfolio strategy

The fund has a very compact portfolio of 23 stocks and the top three preferred sectors of energy, financial services and consumer goods accounted for 51 per cent of the assets.

The fund’s cash position (15 per cent by end March) and a defensive tilt towards large cap stocks (SBI, Bharti, ITC and Hindustan Unilever were among top exposures) has probably muted partucipation in the recent rally.

The fund has been active in churning the portfolio over the past six months — on an average seven-eight new stocks were churned in the monthly portfolio thus increasing portfolio turnover. Barring a handful, most stocks were replaced in the past six months.

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