Fund Call. SBI Blue Chip: Bluechip slant cushions downside risk

After a choppy start, the bellwether indices have surged since their February low. Some early signs of a pick-up in corporate earnings and expectations of an above-normal monsoon are positives that can drive market sentiment. But increasing commodity and food prices can play spoilsport in the coming months. The market has also entered into a fickle territory post-Brexit.

Hence, investors with a low to medium risk appetite can opt for large-cap funds that limit the downside risk.

SBI Blue Chip is one of the top-performing funds in the large-cap category. Over the last five years, the fund has delivered annual returns of 16 per cent, outperforming the benchmark — BSE 100 that returned 8 per cent. Over one- and three-year periods, the fund has outperformed the benchmark by 6-8 percentage points. Moreover, the fund has beaten its peers, such as Franklin India Bluechip, Birla Sun Life Top 100, DSPBR Top 100 and UTI Top 100 over the last one-, three- and five-year periods.

The fund’s performance has also been consistent; delivering better returns over its benchmark, 87 per cent of the time on an annual rolling return basis over the last five years.

Portfolio and strategy The fund’s equity holdings have ranged between 82 and 97 per cent. It has shifted allocations towards debt and cash whenever markets turned volatile.

For instance, in October last year, when markets turned jittery, the fund trimmed its equity holdings to about 82 per cent. It has now increased it to 88 per cent. The fund invests mainly in large-cap companies and about 15 per cent in mid-caps that provide a kicker to returns. Last year, the fund outperformed the benchmark comfortably by advancing 8 per cent.

Banks, pharma and software are the top preferred sectors. Over the last one year, the fund exited media & entertainment, telecom and transport sectors. Healthcare services and power got berths in the portfolio instead. The fund has also increased allocations in cyclicals, such as cement, over the past six months. The fund is overweight on sectors such as healthcare, automobile, construction and chemicals compared with its benchmark.

But, it is underweight on financials, software, energy and FMCG sectors.

The fund has 50 stocks with low churning of portfolio. The exposure to individual stocks is restricted to below 3 per cent except in the case of its top five holdings. This mitigates risks. HDFC Bank, Infosys, Reliance Industries, Sun Pharmaceutical and Tata Motors are its top five holdings.

HDFC Bank and Infosys have fared well in the last one year. It added Mahindra & Mahindra last August.

Other stocks the fund added recently are Aurobindo Pharma, HCL Technologies, PI Industries and Eicher Motors; these are likely to yield returns in the long run.

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