Fund Call. SBI Magnum Equity: Play it safe with this veteran

Investors with a long-term perspective of at least five years and seeking steady rather than spectacular returns can consider SBI Magnum Equity.

This fund has a good long-term track record and is a veteran in the large-cap category. With broader markets turning volatile in recent times and mid- and small-cap stocks having run up a lot, the risk-averse can shift their focus to steadier large-cap funds.

Over one-, three- and five-year time frames, SBI Magnum Equity has managed to outshine its benchmark Nifty 50, delivering 11 per cent, 19.7 per cent and 15.8 per cent, respectively. The extent of out-performance has been to the tune of 4-6 percentage points. The fund has also outpaced its category across these time periods. Investors can invest via the SIP (systematic investment plan) route to mitigate risk of market volatility.

SBI Magnum Equity ranks in the top quartile of funds in its category across three and five years, well ahead of the likes of Franklin India Bluechip and DSPBR Top 100 Equity.

The fund did go through a rough patch in 2008, but has been outperforming its benchmark ever since. It has held its performance across market cycles. It managed to contain the downside well during the lacklustre markets of 2011 and 2015 by taking good cash and debt calls.

SBI Magnum Equity has a more focused approach to its portfolio. It holds roughly around 30 stocks, so exposure to some individual stocks can be high. For instance, the allocation in the top two stocks, HDFC Bank and Infosys, is 9.5 per cent and 7.6 per cent, respectively. In its recent portfolio, the top three sectors account for 62 per cent and 10 stocks account for almost 50 per cent of the portfolio.

Although such concentrated bets can be risky, the fact that these stocks are usually sound bluechips offers comfort.

This lends stability and reduces volatility to some extent.

Banking is the top preferred sector. The fund rightly took exposure to banking and auto stocks in 2014. These stocks were on a roll then, on hopes of big-bang reforms by the Modi-led government.

Right sectoral churn across markets has kept its performance in good stead. For instance, it has trimmed its allocations to software, an industry that has been grappling with multiple challenges but has increased its allocation to finance and pharma stocks.

The fund has increased its allocation in Reliance Industries to 4.4 per cent from about 2 per cent a couple of months back. Recently it added stocks such as Eicher Motors, Max Financial Services and IndusInd Bank. Recent exits are Pidilite Industries and United Spirits.