Reliance Growth: Hurt by heavy cash calls

Reliance Growth is a diversified equity fund focusing on the mid-cap space with some exposure to large-cap stocks as well. It has a long-term track record of more than 15 years.

The scheme was a darling of investors prior to 2008 and had one of the largest e asset bases then.

But over the past several years it has had a fairly mediocre run. It has underperformed its benchmark - BSE 100. Reliance Growth delivered annual returns of of 9.9 per cent and 0.2 per cent over one-, and three-year periods, respectively.

The fund has also been an underperformer relative to most of its mid-cap peers in these periods. Its glorious track record of the past just seems to have evaporated as the fund stands at the bottom quartile of funds measured by returns. Its asset size has been reducing, indicating the possibility of some redemption pressure, apart from dividend payout.

Sector Trends

The fund’s top three preferred sectors are generally pharma, banks and software in recent years. The fund has 43 per cent of its portfolio allocated to these three sectors. It has upped its allocations in pharma and software while marginally trimming its allocation to banks over the past three years.

During the second half of 2009, the fund increased its allocation to cash and debt. In fact it held as much as 15.6 per cent of its assets in such instruments in October 2009, even as the bulls were raging.

This hurt Reliance Growth’s chances of participating in heavy market rallies.

The fund quit a few sectors such as petroleum products, textiles , non-ferrous metals and telecommunication equipment.

On the other hand, it increased exposure to media & entertainment and industrial products.

Stocks Trends

The fund’s portfolio is well-diversified with the top five stocks adding up to about 23 per cent of its portfolio and top ten stocks accounting for 41 per cent, thus avoiding any concentrated exposure.

During early 2009, the fund had exposure to defensive stocks such as Lupin, Jindal Steel & Power, Jain Irrigation Systems, Bharti Airtel, Infosys and Divis Laboratories. These turned out to be a mixed bag with some outperforming and many other stocks not gaining significantly or even correcting steeply. In recent times the fund took exposure in the stock of United Spirits, Aditya Birla Nuvo and Indiabulls Housing Finance. These stocks have performed well over the past one year.

A combination of high cash position and weak stock choices pulled down Reliance Growth significantly over the past few years.

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