Mutual Funds

SBI Small Cap: Consistent returns over the long term

Yoganand D | Updated on August 26, 2019

The scheme has outperformed its benchmark over five and seven years

The stocks in the mid- and small-cap universe have corrected significantly over the past 6-12 months. This provides an opportunity for investors with a high risk profile to bet on such stocks.


They can consider the mutual fund route and select small-cap schemes that have generated consistent returns over the long term. SBI Small Cap is one such fund that has delivered steady returns since its launch.

Performance and strategy

Over the past five- and seven-year periods, the scheme has outperformed its benchmark — S&P BSE SmallCap Index TRI — in the margin of 12 percentage points. The fund also outpaced its benchmark with 10-12 percentage points in the last one- and three-year time-frames.


It has outshined its peers including HDFC Small Cap and Reliance Small Cap across all-time frames.

In the bear phases of 2011, 2013 and 2018, SBI Small Cap contained the downside well and delivered higher returns than the benchmark and the category. The performance of the fund during the current market turmoil has been noteworthy.

Over the past year, the scheme declined by 13.5 per cent while the category tumbled 17.7 per cent and the benchmark nose-dived 26 per cent. During bull markets, for instance, in 2014 and 2017 rallies, it delivered substantial returns, beating the benchmark and the category by a huge margin, and gained 110 per cent and 78 per cent, respectively.

SBI Small Cap has the mandate to invest at least 65 per cent of its assets in small-cap stocks and the rest in large- and mid-caps, as well as a portion in debt. It takes active cash and debt calls to limit losses during bear and volatile markets. Investing in the fund provides long-term growth in capital by predominantly investing in well-diversified small-cap stocks. The fund follows a combination of growth and value style of investing. With right sector and stock picks, it follows a bottom-up investment strategy.

From about 98 per cent exposure in March this year, the fund has gradually trimmed its equity allocation to 88 per cent, forecasting the continued bear phase in the small-cap segment. On the other hand, it has upped its cash and cash equivalents to 11.8 per cent recently. Reducing the allocation in finance and consumer non-durables over the past six months, the scheme has taken exposures in new sectors such as cement, industrial capital goods, software, pesticides and retailing, further diversifying the portfolio. Industrial products and consumer durables are the current top-preferred sectors.

It has trimmed its portfolio from about 80 stocks in 2018 to 35-45 now. Nevertheless, barring a few top holdings, its allocation in individual stocks is less than 3.5 per cent to mitigate risk. Some of the key long-term holdings are Hawkins Cookers, Relaxo Footwears, Kirloskar Oil Engines, Galaxy Surfactants, Hatsun Agro Products and Elgi Equipments.

While it added JK Cement, Emami and Techno Electric & Engineering Company to the top holdings over the past six months, the fund exited AAVAS Financiers, Avanti Feeds and Camlin Fine Sciences over the same period.

Published on August 24, 2019

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