Mutual Funds

Fidelity Equity: Invest

K. Venkatasubramanian | Updated on February 19, 2011

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This may be a good time to hold the fund considering its large-cap focussed portfolio and strategy of spreading risk thin by holding a large number of stocks.

Investors can buy units of Fidelity Equity Fund, given its long-term track record in delivering steady returns. Over one-, three- and five-year timeframes, the fund has comfortably beaten its benchmark, BSE 200. The fund, while ensuring adequate participation in rallies, also contains slide in its NAV during market falls.

In a period of five years, the fund has delivered a compounded annual return of 16.6 per cent, placing it in the top-quartile of diversified fund performance chart. It has improved its performance over one- and three-years, thus placing itself among the top few funds in its category.

In the above period, it outperformed some of the consistent funds such as DSPBR Top 100 Equity and Birla Sun Life Frontline Equity. While the last-mentioned funds have a superior track record over the long term, Fidelity Equity would fit a core portfolio, given its consistent performance. The fund, in fact, sports a better record over a longer time frame when compared with large-cap funds such as Franklin Bluechip.

Given the current market volatility, this may be a good time to hold this fund considering its large-cap focussed portfolio and strategy of spreading risk thin by holding a large number of stocks. Besides, the fund has often quickly moved to defensive bets during rough patches in the market.

Fidelity Equity may be suitable for investors with lower appetite for risk. Systematic Investment Plans would be an ideal route to buy funds in the present market.

Performance and strategy: During the periods of market fall (to the tune of 15-30 percent) such as those witnessed during May-June 2006, early 2007 and in the protracted correction of 2008-09, Fidelity Equity has managed to contain downsides better than BSE 200. Even in the recent correction over the last couple of months, the fund has corrected less than most reference indices and peers. In terms of participating in market rallies, while the fund exceeded its benchmark's returns in 2006 and in the upswing from March 2009, it underperformed quite heavily in 2007 as its large-cap focus did not aid in the broad market rally which was driven by midcaps. Fidelity Equity invests nearly 80 per cent of its portfolio in large-cap stocks.

What is noteworthy is that even during the worst falls in the markets, such as the one during October 2008-March 2009, the fund moved into cash to the tune of not more than 5-10 per cent. This has also allowed it to swiftly deploy funds when the markets turn around.

Banks and software have always been the top favoured sectors for the fund. The other key sectors that have been held through market cycles include consumer non-durables and pharma — outperforming themes over the last two years.

In recent portfolios, Fidelity Equity has also increased exposure to sectors such as petroleum and media. The fact that exposure to sectors that have underperformed — capital goods, infrastructure and construction — has been very limited has helped the fund stem the tide.

Published on February 19, 2011

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