Fund Call. SBI Blue Chip: Play it safe with this veteran

The market continues to be on a roll, with indices hovering near their all-time highs. But with corporate earnings still playing truant, there are rising concerns about stiff valuations and the possibility of a market correction.

For those seeking relatively safe bets now, a large-cap fund with a sound, long-term track record seems a good choice. Generally, large-cap funds can weather market weakness better than mid and small-cap funds, while also participating well in upsides.

SBI Blue Chip, more than a decade old, is among the good choices in the large-cap category. With annualised returns of about 14 per cent over three years and 20 per cent over five years, it has beaten the benchmark S&P BSE 100 comfortably — by about 6 percentage points. The long-term winning consistency is also quite high; on a one-year daily rolling return basis, the fund has done better than the benchmark almost 85 per cent of the time in the past five years.

The track record would have been better but for the dip in performance in the past year. SBI Blue Chip’s 16 per cent return last year is lower than the benchmark’s 17 per cent return and is also lesser than the category average.

This is due to the fund being underweight on financial and metal stocks which have had a good run, and overweight on the beleaguered pharma sector.

The fund has, in recent times, added to exposure in financials and metals while trimming exposure to pharma stocks; this should aid performance. Despite the short-term underperformance, SBI Blue Chip’s robust record places it in the top quartile among peers in the long term, ahead of peers such as DSP BlackRock Focus 25 and ICICI Prudential Focused Bluechip.

The fund invests largely (about 80 per cent of the corpus) in large-cap stocks and also takes mid-cap exposure of up to 20 per cent of the portfolio to give a kicker to returns.

Over the past year and half, though, the mid-cap exposure has been pared considerably — from about 18 per cent of the corpus in December 2015 to about 11 per cent in December 2016 and to just about 7 per cent in August 2017. This would also have dragged performance in the short term. But playing it safe by shifting more to large-caps could work to the fund’s advantage at this juncture with the market seemingly overvalued.

Exposure to cash and equivalents has also been upped in recent months to about 11 per cent of the corpus in August 2017 from about 8 per cent since April.

SBI Blue Chip follows a growth investing approach but mitigates risk by holding a large portfolio of more than 50 stocks. The largest exposure is to HDFC Bank (about 8 per cent of the corpus) with most of the other stocks under 3 per cent of the portfolio.

Multi-baggers such as Motherson Sumi and Eicher Motors have boosted the fund’s long-term returns. Exposure to banks, the fund’s largest sector holding, has been increased in the past year, while there has been a sharp cut in exposure to the weak software sector.

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