Mutual Funds

Reliance Vision Fund - Switch

M. V. S. Santosh Kumar | Updated on October 06, 2012

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Investors can take the current market rally as an opportunity to exit the units of Reliance Vision, a large-cap fund. Instead, they can switch their proceeds to Reliance Equity Opportunities Fund, a stronger multi-cap performer.

Reliance Vision has lagged behind its peers over the past five years. The returns over three- and five-year periods were 4.6 per cent and 2.1 per cent respectively as compared to the large-cap category average returns of 5.5 per cent and 2.6 per cent.

The fund has performed marginally better than its benchmark, the BSE100. Reliance Equity Opportunities, which has a broader mandate of investing across large-, mid- and small-cap stocks, gave an impressive 17.7 per cent and 10.5 per cent annually over the past three- and five-year periods.

Why sell

The risk-adjusted returns of Reliance Equity Opportunities are better than Reliance Vision.

Reliance Vision has lagged behind its benchmark half the time on a rolling one-year basis over the past five years.

While the systematic investment route would have given better returns (8 per cent annualised return) during the five-year period in the case of Reliance Vision, it still lags behind Reliance Equity Opportunities which delivered 20 per cent annualised return.

Performance

The return of Reliance Vision over the last one year was 16.8 per cent, while its benchmark returned 20 per cent .

The fund underperformed over the past five years because of its inability to limit downside during market corrections. In all the major market corrections since 2006, it has fallen more than the index.

Due to heavy falls in 2008 and 2011, the fund failed to recoup the losses even as it rallied more than its benchmark, once the tide reversed.

For instance, in the correction between January 2008 and March 2009, it lost 68 per cent of its value, while the BSE 100 index lost 62 per cent.

As a consequence, even as the fund almost doubled in value during the rally that ended in November 2010, it still couldn’t fully catch up with peers .

Even as the fund looks for value-based investing to make good returns, its sector choices may have led to underperformance.

Over the past couple of years, the fund had relatively lower investments in FMCG stocks but higher exposure to capital goods and oil sectors, which underperformed due to falling capex investments and rupee depreciation. Higher weights for stocks such as TVS Motors, HPCL, Sanofi India, Siemens and Alstom T&D, which underperformed the market over the past one year, led to the fund’s flat performance.

Even as its cash holdings increased during market corrections and it had traditionally higher weights for pharma stocks, the fund failed to manage the market corrections better.

The current portfolio is overweight on pharma sector, followed by auto and banks. Large-cap stocks account for 69 per cent of the portfolio. The current portfolio is compact with 29 stocks accounting for much of the portfolio .

Reliance Equity Opportunities, on the other hand, has higher weight for software and media and entertainment sectors.

It has invested 59 per cent of the portfolio in large-cap stocks with the rest being in mid- and small-cap stocks.

Its portfolio holding is slightly more diverse than Reliance Vision Fund.

Published on October 06, 2012

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