Reliance Growth Fund - SWITCH

Unit holders in Reliance Growth fund can consider a switch to Reliance Equity Opportunities fund. Our recommendation stems from Reliance Growth's underperformance in recent years.

The fund trailed most of its midcap peers as well as category average in the last few years. While it managed to stay ahead of its benchmark during these periods, it isn't a true midcap fund any more.

A burgeoning asset size also means that it can no longer pick momentum stocks that it did in earlier years to generate extraordinary returns.

With significant exposure to large cap stocks now, the fund's glorious past track record may be tough to repeat.

Besides, the fund's huge asset base — the largest in the category of midcap funds — is likely to make it difficult for it to pursue any aggressive mid-cap investment strategy. Investors who entered the fund to get mid-cap exposure can switch to Reliance Equity Opportunities.

Reliance Equity Opportunities, given its multi-cap investment approach and relatively lower asset base, therefore makes a better investment option to play the markets now.

The lower asset size also allows the fund to leverage mid-cap opportunities better. Pitted against the same benchmark, its returns across time periods have been better than Reliance Growth.

Performance : Reliance Growth has delivered a compounded growth of about -5.7 per cent, 26.6 per cent and 10.5 per cent over one-, three-, and five-year periods, respectively.

While it managed to trump its benchmark BSE 100 in these periods, the margin of outperformance has thinned down over the years.

What also makes the fund unimpressive is its lacklustre returns scorecard in recent years. Over a one- and three-year period, it has lagged peers such as IDFC Premier Equity, Religare Mid Cap and Canara Robeco Emerging Equities by a huge margin.

Wrong asset moves, not so well-timed stock and sector choices, kept the fund from delivering nifty gains.

For instance, while the fund had done splendidly well in the weak markets of 2008 — it had lost much less than peers — a high cash holding in 2009 kept it from enjoying the spoils of the equity rally that followed.

As a result from March 2009 lows to the end of the year, its returns at 133 per cent pale against that of its peers.

On the whole, the fund's performance in recent times has been largely chequered. While in 2007 its returns of 77 per cent fetched it a place in the top quartile, it failed to replicate its winning ways 2009 onwards.

In each of the three years from 2009, its performance slipped vis-à-vis peers. Its year-to-date return at 16 per cent is just in line with the category average.

While its impressive long-term scorecard still holds charm — since its launch in 1995, it has delivered about 25.5 per cent compounded returns — replicating a similar performance in the future wouldn't be easy.

For one, the fund is no longer a midcap-focussed fund unlike what it was earlier.

Two, the fund's asset size has grown considerably over the last decade, making it difficult to manoeuvre the midcap space as flexibly as before. From about Rs 25 crore in February 2003, its asset size has now grown to about Rs 5,735 crore.

Portfolio : As mentioned earlier, the fund doesn't sport a midcap tag anymore.

Midcap stocks (market capitalisation of less than Rs 7,500 crore and more than Rs 3,500 crore) make up only about 16.5 per cent of its current portfolio.

Large and small-caps make up about 42 per cent and 23 per cent, respectively.

Its portfolio, however, is well-diversified, with top 5 stocks making up only about 20 per cent of its portfolio. Top ten make up 36 per cent.

In terms of sector exposure, sectors such as financial, healthcare, technology and energy enjoy top weightage.

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