Fund Call. Tata Equity PE: In sync with market ups and downs

If you are wary of the markets after the strong rally of the last one year, you can invest in Tata Equity PE fund. While this is a diversified equity fund, it adopts a more conservative approach when it comes to stock picking. The fund has a mandate to invest at least 70 per cent of its portfolio in stocks whose valuations are lower than that of the Sensex.

In times such as now where valuations of many stocks have expanded sharply, this strategy provides some comfort.

Strategy

Though benchmarked to the Sensex for the purpose of choosing stocks, Tata Equity PE is a multi-cap fund. So, if mid- and small-caps (stocks with market capitalisation of less than ₹10,000 crore) offer greater potential at a particular point in time, it pushes up mid-cap allocations to 40-50 per cent of its equity holdings, as it did in 2014.

But there are times, such as the volatile markets of 2015 and 2016, when mid- and small-cap stock exposure was much lower. This strategy gives the fund a flexi-cap profile. Considering that the markets have galloped in the last one year, the fund has gradually shifted preference to large-cap stocks. Mid- and small-caps constitute only 13 per cent of the latest portfolio, compared with 31 per cent in the beginning of 2017.

Secondly, to protect against downsides, the fund also takes reasonable exposure to cash and debt when the markets seem iffy. Compared to 97-98 per cent throughout the 2014 rally, equity holdings were at 90-95 per cent during the volatility seen in 2015 and 2016. In 2017 though, the fund was cautious in the first half, while it pumped more into equities in the second half of the year to cash in on the rally. Over one-, three- and five-year periods, the fund has scored 10 to 11 percentage points over the benchmark. In these time-frames, the fund has done better than other multi-cap funds, such as ICICI Pru Value Discovery, SBI Magnum Multicap and Franklin Flexi Cap.

Portfolio

The fund has churned its sectors well in the last one year. Headwinds in the software space due to strong rupee as well as weak growth prospects have seen the fund pare exposure here. The fund is betting big on the cyclical auto and auto ancillaries space, with collective exposure to this segment at 18.4 per cent in the December 2017 portfolio vis-à-vis 7 per cent in January 2017.

Decreasing borrowing costs and improving rural consumption have triggered this bet, which has also paid off well for the fund. However, the fund has taken care to not continue riding on the overheated ones.

Stakes in stocks such as Maruti Suzuki and Ceat, whose valuations have expanded sharply, have been cut gradually in recent times. On the other hand, more reasonably valued stocks such as Mahindra and Mahindra, and Exide Industries have been added in the last few months.

Banking and finance stocks are usually among the top sector choices for the fund. YES Bank and City Union Bank feature among its holdings.

True to its mandate, the fund’s latest portfolio PE (trailing) stand at 22.8 times, as against the Sensex’s trailing PE of 25.2 times.

COMMENT NOW