SBI Magnum Multiplier Plus - Analysis

 SBI Magnum Multiplier Plus: Hold

Investors in SBI Magnum Multiplier Plus can retain their holdings. While the fund's performance over the last one-two years has been subdued, it has notched up a good track record over a three and five-year period. Investors holding on to the fund since inception in 1993 would have earned a compounded annual return of 19 per cent.

Suitability: The fund is similar to other diversified funds in terms of objectives. However, its strategy is slightly riskier.

Magnum Multiplier has a tendency to take concentrated bets on a few sectors with close to 50 per cent of the assets invested in such sectors.

In such a strategy, right timing and selection of sectors become crucial for performance. While such concentrated exposure can help during a bull market, during volatile phases, the valuations offered by the market to certain sectors can change dramatically and alter the overall return of the fund for the better or worse. Hence the fund is suitable for investors who prefer higher risks compared to diversified funds.

Performance: The fund has generated a return of 64 per cent over a five-year time frame and outpaced the benchmark BSE 100 by 15 percentage points.

However, over a more recent period of one to two years, the return does not appear to be compensating the risk. On both occasions, it just managed to outpace the benchmark by a few percentage points.

But the fund has consistently outpaced the category average substantially over the past five years. On a rolling return basis, it has trailed the benchmark on eleven out of the past twenty-four months.

Portfolio: Capital goods, construction and finance are the preferred sectors and together they account for 55 per cent of the assets. The fund predominantly invests in large-cap stocks and exposure to stocks with market capitalisation of less than Rs 7,500 crore is about one-third of the total assets. In general, diversified funds prefer to restrict exposure to any single stock to less than 10 per cent of the portfolio.

Magnum Multiplier, however, stepped up exposure in Kotak Mahindra Bank recently as it constituted 11.4 per cent of the assets despite the fund pruning the holdings over the past quarter. The fund prefers to adopt a buy-and-hold strategy that has paid off in stocks such as BHEL, Kotak Mahindra Bank and Crompton Greaves.

Fund facts: The fund was launched in February 1993 as a close ended one and was made open-ended in April 1998. Earlier, it was jointly managed by Mr Sanjay Sinha and Mr Jayesh Shroff. Now the latter manages it. The NAV per unit is Rs 73.67.

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Tata Equity Opportunities - Analysis

Tata Equity Opportunities — Riding growth story

Tata Equity Opportunities Fund invests predominantly in large-cap stocks, with a sprinkling of mid-caps thrown in. The fund is among the top performing over a five-year period .

An analysis of the fund over the July-December period reveals an active churn of stocks. During this period, as many as 20 stocks found their way into fund, while 29 saw their way out. These six months saw the fund's assets grow by 32.8 per cent to Rs 617.5 crore, while the NAV increased by 52 per cent to Rs 102.4 per unit, possibly because of a dividend payout and net redemptions.

Sector Moves: The top two sector holdings continue to be capital goods (18.5 per cent) and banks (9.4 per cent), albeit with slightly reduced exposures. Both the sectors had a fair run last year. Media, which rarely figures in the top sector holdings of funds, continues to be a preferred exposure.

Riding the India infrastructure growth story, construction and cement sectors have seen exposures increase three and five times respectively, to be among the top holdings. The fund also doubled exposure to power and ferrous metals . Both these sectors may be expected to do well in the medium term due to macro demand and supply scenario. Not surprisingly, due to fears of US recession and rupee appreciation impacting revenue visibility, the software sector (4 per cent) has seen exposures halved. Exposures in the telecom services (2.5 per cent) were reduced to a third of previous levels. The pharmaceuticals sector too saw exposure trimmed by half.

Stock Moves: Adlabs films, Reliance Capital and Sterlite industries, stocks that doubled over the July-December period, were added to the portfolio, as were SBI and SAIL. Jindal Steel and Power and Reliance Energy — stocks that gained over three times during the period — are also fresh entrants.

Other picks include Gujarat Mineral Development, Tata Chemicals, HCC and Gujarat State Fertilisers. Infosys Technologies and Tech Mahindra are out of the portfolio. ICICI Bank, Bharti Airtel, Siemens and Sun TV are some other high-profile exits.

Reliance Industries (4.5 per cent) is the top holding for the fund now and has remained with the fund during this period. . The fund continued to hold L&T, BHEL, Reliance Energy, and Crompton Greaves over the July-December period. Interestingly, IT stocks Satyam Computer and Tanla Solutions figure among the stocks that were retained.

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MF assets to touch $440 billion by 2012

A McKinsey report says institutional investments in Indian mutual funds may witness 25-33 per cent annual growth, with total assets under management increasing from $42 billion in 2007 to $160 billion by 2012. As in the past, large and mid-sized corporations will be the dominant players.

The total assets under management of the Indian mutual fund industry could grow to $350-440 billion by 2012, expanding by 33 per cent annually, predicts a recent report, "Indian Asset Management: Achieving Broad-based Growth" by McKinsey & Company.

The report also notes that while revenue and profit pools for Indian asset management companies (AMCs) is currently small (revenues of $542 million and profits before tax of $220 million in 2006-07), the profitability of Indian AMCs was at par with peers in other economies.

Operating profits for AMCs in India, as a percentage of average assets under management, were at 32 basis points in 2006-07, while the number was 12 bps in UK, 17 bps in Germany and 18 bps in the US, in the same time frame.

The authors believe that retail mutual funds and portfolio management services will be the key drivers of profitability for AMCs, though the institutional segment is key to volumes.

The report predicts that the retail segment could grow at a compounded annual growth rate of 36 – 42 per cent annually, taking the total AUM from US$36 billion in 2007 to $160–$200 billion in 2012. Rising incomes and increasing demand for wealth management services will drive this growth.

The research suggests that the 'mass affluent' segment in the top eight cities and the broad retail segments in tier 2 and tier 3 cities will be the key growth drivers. The report captures results of McKinsey's proprietary research and a survey of 850 independent financial advisors and 750 investors.

The report says that institutional investments in mutual funds are likely to witness a 25-33 per cent annual growth, with total assets under management increasing from $42 billion in 2007 to $160 billion by 2012. As in the past, large and mid-sized corporations will be the dominant players.

"Participation of several players such as PSUs, pension funds, insurance companies will be shaped by the regulations and could substantially boost the assets under management. This will also shift the mix to more profitable products rather than largely liquid funds," says Naveen Tahilyani, Partner, McKinsey & Company and one of the authors of the study.

The retail and PMS segments accounted for a bulk of the profits for AMCs in 2007. 75 per cent of the assets under management and about 95 per cent of the retail profits were realised from the top eight cities, it says. However, with increasing investments by players, McKinsey expects the share of top eight cities to come down to 60 per cent and profits to come down to about 80 per cent as the next-tier cities show the potential to grow at a faster rate.

In addition, buoyant economic growth will attract participation from the international investment community across retail (both NRI and others) and institutional segments. AMCs will tap this through a variety of plays- owned presence, distribution tie-ups and advisory models across key overseas markets such as the US, the UK, West Asia, Hong Kong, Singapore and Japan. In 2007, across all funds, not just Indian AMCs, size of India-focused funds is already $80 billion.

With retail investors to dominate, McKinsey expects plain vanilla MF products to drive the growth as about 9-10 million new customers are expected to enter the market in the next five years. This has also been the experience in several other markets including the US, where 75 per cent of AUMs are in simple traditional products.

"Given the convergence of MF and insurance products (driven by ULIPs), we believe there is a strong case to ensure parity in product features and distribution commissions. A benchmarking of the products and our proprietary customer research shows that today the insurance products have significant advantages. For end-customers ULIPs are seen as investment products that are more transparent, safer and offer various tax benefits", says Joydeep Sengupta, Director McKinsey & Company.

McKinsey's research reveals that the single largest factor influencing customer purchase is the recommendation received from the sales channel. Distribution remains the biggest factor for success. While banks are the most important channel in the top eight cities, IFAs are increasingly becoming important beyond these cities.

However, brand building is becoming critical as well. Several high-performing funds in India have seen outflows or below market growth over the year 2007 clearly establishing the fact that performance alone is not enough and has to be backed by a strong brand.

This phenomenon is also clearly observed in other markets such as the US, where strong brand equity helps create a strong perception of performance in the minds of the customers and the channels.

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HDFC Growth Fund - Analysis

HDFC Growth Fund: Stability in holdings

HDFC Growth Fund invests in stocks across market capitalisations. Despite a large-cap bias, mid and small cap stocks account for 28 per cent of the portfolio. The fund has managed to consistently beat its benchmark Sensex over one-, three- and five-year periods.

In the latest portfolio, the fund has invested in as many as 52 stocks across 18 different sectors making it a fairly diversified portfolio. In the September 2007 to February 2008 period, the fund's corpus has increased by 48.2 per cent to Rs 924.5 crore, while the NAV per unit has increased only 16.6 per cent. This may indicate net inflows into the fund.

Sector Moves: There is a fair bit of stability in terms of top sector holdings in the portfolio. Industrial capital goods (14.4 per cent) and pharmaceuticals (13.9 per cent) sectors continue to be the top two sector holdings, although exposures have been a bit reduced.

Banks and consumer non-durables also figure among top holdings in the fund, and have seen increased exposures over the September-February period. While capital goods and banks have done well in the past year, they have been among the worst hit in the recent meltdown.

The respective sector indices were beaten down by over 25 per cent in the last couple of months. Construction and predictably, software exposures have been pared in the six-month period.

Interestingly, media and entertainment (4.6 per cent), which were not part of the portfolio six months ago is now in the top ten sector holdings for the fund. The power sector has been exited, while telecom services and auto ancillaries exposures have been increased substantially.

Stock Moves: Tata Communications and Exide Industries, stocks that have gained over 23 per cent in the Sept-Feb period find their way into the portfolio. Sadbhav Engineering, a stock that ran up 115 per cent during this period also finds its way in. Most other stocks are those whose prices have fallen during September-February. These include stocks such as Zee Entertainment, HT Media and Dr Reddy's Labs.

The fund has also taken profit booking opportunities, with several stocks whose prices rose between 60-105 per cent have been exited. These include, Axis Bank, Hanung Toys and Tata Power. Other high-profile exits include DLF, HPCL, Ranbaxy Labs, and Punj Lloyd.

Reliance Industries, SBI, ONGC and BHEL are the stocks retained by the fund during the period and are among the fund's top holdings.

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