SBI Magnum Multiplier: BUY. Scores with astute sector and stock calls

SBI Magnum Multiplier is a good pick for investors with a moderate risk appetite. Investing predominantly in large-cap stocks, the fund keeps peers such as L&T Equity and HDFC Top 200 at bay by astute sector calls and stock selection.

Over one, three and five-year periods, the fund has bettered its benchmark, the BSE 200, by a comfortable 4-9 percentage points. The fund beat the benchmark 85 per cent of the time on a daily rolling return basis in the last five years, pointing to a very dependable track record of out-performance.

Across market cycles, Magnum Multiplier holds large-cap stocks (those with market cap of ₹7,500 crore and above) to the extent of 80-85 per cent of its equity holdings. While the fund does take a bit of exposure to mid-cap stocks to boost returns, it keeps risks lower by not tactically raising mid-cap holdings when the market continues to reward these stocks. From about 14 per cent in mid-cap stocks in early 2014, for instance, the fund moved up its holdings in this space to around 20 per cent by early 2015.

But since then, mid-cap exposure has remained at this level, notwithstanding the fact that many mid-caps have continued to do well in the last one year while large-caps took a beating.

It also follows a defensive style when it comes to asset allocation. Thus, the iffy markets of 2016 have seen equity holdings come down to about 90 per cent in its latest (February 2016) portfolio. It was over 95 per cent in the 2014 rally and stood at around 90-95 per cent during the 2015 volatility. A steady large-cap exposure and timely changes in asset allocation help the fund contain losses better than the benchmark in falling and volatile markets. At the same time, a smattering of mid-caps helps the fund beat the benchmark during rallies.

Over the years, Magnum Multiplier’s preferred sectors have been a blend of cyclicals and defensives such as banks, software and pharma.

While banks still remain the top sector holding now, stake in the space has been pared from 17 per cent a year ago to about 11 per cent now.

Given the asset quality issues, exposure to public sector banks such as SBI and Federal Bank has been reduced. Reforms in the oil and gas space, coupled with low crude prices which have benefited refineries, saw the fund upping its stake in Reliance Industries and HPCL.

It also entered Gujarat State Petronet recently. In the last one year, the fund also seems to be betting on the urban consumption theme by upping holdings in stocks such as Asian Paints, consumer finance major Bajaj Finance and retail lender HDFC.

IPCA Labs, Bata India, SKF, Prism Cement are some of the promising mid-cap plays in the latest portfolio.

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