Mutual Funds

Good diversifier

Parvatha Vardhini C. | Updated on March 30, 2013

IW31_spot2 LT Special.eps

The scheme is suitable for investors with a higher risk appetite, willing to wait for two-three years to reap benefits.

Investors looking to diversify their portfolio can buy units in the L&T India Special Situations Fund (formerly Fidelity India Special Situations). The scheme predominantly focuses on investing in undervalued companies. Stocks that are either out of favour or in special situations, such as mergers, turnarounds, and takeovers, are among the fund’s picks. This approach pegs up the risk in comparison to other regular diversified funds. It also implies that you might have to stay invested for a longer period of time for the theme to pay off. Hence it is suitable for investors with a higher risk appetite, willing to wait for two-three years to reap the benefits. It is best held as a diversifier and not as part of your core portfolio.

Consistent performer

The steady performance of the fund inspires confidence. Over one-, three- and five-year time-frames, it has beaten its benchmark, the BSE 200 index by 4-5 percentage points. Given its theme, the fund sifts across small-, mid- and large-cap stocks for choices and hence is categorised as a multi-cap fund. Over the above timeframes, it has outperformed other multi-cap funds such as HDFC Growth, DSPBR Opportunities and Birla Sun Life Special Situations, while trailing best performing funds such as Reliance Equity Opportunities.

The fund’s ability to consistently contain downsides is an added advantage. For example, its 40-50 per cent exposure in large-cap stocks (market cap of Rs 7,500 crore and above) helped it lose about 4 percentage points less than the benchmark in the 2011 market fall. On the other hand, while it does give impressive returns on upswings, returns tend to lag the benchmark in protracted/secular rallies such as the one in 2009.

Portfolio Strategy

The fund tries to offset the risk emanating from its theme by taking adequate exposure to large-cap stocks. The latest portfolio (February 2013) sports an average market capitalisation of Rs 28,500 crore, with almost half the stocks being large-cap. This offers some solace in the current uncertain market conditions, as large-caps tend to have greater earnings visibility.

While Banking, Finance and Software have been the top sectors in the last one year, the fund has stuck to its value moorings by not buying into FMCG stocks, whose valuations catapulted during this period. However, Jyothy Labs has been a recent addition to its portfolio, perhaps on expectations of synergy benefits out of the Henkel merger. Similarly, holdings in United Spirits too have been increased, betting on the acquisition of a majority stake by Diageo.

Stakes in beaten down sectors such as capital goods have also been increased in recent times, with Crompton Greaves and Kalpataru Power Transmission being added.

Published on March 30, 2013

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