Sundaram Select Focus: SELL. Lags benchmark

Even as many large-cap funds manage to better their benchmark during a bull phase, sustaining performance in a downturn has been the real challenge. This has been particularly true for Sundaram Select Focus, the large cap fund from the Sundaram Mutual stable.

Over one-, three- and five-year time frames, the fund lagged its benchmark and category average’s returns. The performance gap has widened in the last one year, with the fund delivering a meagre 4 per cent, compared with 9.1 per cent gain for the Nifty. The fund returns were flat on a three-year basis even as the index recorded 3.5 per cent gain annually. On a five-year basis the fund delivered a lacklustre 1.4 per cent gain, while its benchmark rose by 5.2 per cent.

Investors may use this opportunity to book profits in the fund. Thus, fresh exposures can be considered on a visible improvement in performance.

After a strong performance during 2004-07, the fund began to slip up by early 2008. Since the 2008 correction, the fund did not taste much success in beating its benchmark, Nifty, and other peers.

During the period January 2008 to April 2009, the fund lost over 50 per cent compared with the 43 per cent slide for Nifty. Higher exposure to banks dragged the fund’s performance during this period. Similarly, holding cyclical sectors such as metals and materials also impacted returns.

The fund managed to clock returns higher than the benchmark during the recovery phase of 2009-10. During this period it delivered total returns of 74 per cent compared with 73 per cent gains for the benchmark. However, it did not succeed in sustaining this good performance. For instance, when the market slipped between November 2010 and December 2011, the fund fell 22 per cent, compared with a 20 per cent fall for the benchmark.

Similarly, when the market started its swift up move by early January 2012 the fund failed to capitalise on the rally. During the period January 2012 to April 2013, the fund delivered a total return of 11 per cent, much lower than the 23 per cent achieved by the benchmark. Lower-than-benchmark exposure to consumer stocks probably impaired performance. For instance, during this period, the fund held just around 3 per cent of assets in consumer major ITC, compared with its over 8 per cent weight in the index. The stock rallied by over 57 per cent during this period, compared with 25 per cent jump for Nifty. In the banking space, a similar example was lower exposure to HDFC and higher exposure to Power Finance Corporation.

Portfolio

At the end of March 2013, the fund held 38 stocks in its portfolio, with an average market capitalisation of over Rs 94,000 crore. It held nearly 5.8 per cent of its assets in short-term debt instruments. In the last one year, the fund has increased exposure to private banks — HDFC, ICICI and Karur Vysya Bank. It has also upped its holding in IT stocks — Infosys, Satyam Computer and HCL Technologies.

(This copy has been edited for facts.)

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