Lahar Bhasin reviews the performance of one of the largest funds of its kind and recommends a cautious ‘wait and watch’ approach
The fund follows a contra strategy, i.e. one where the investment philosophy centers on identifying sectors/stocks which are currently out of favour but have the potential to bounce back. Hitherto, this investment philosophy hasn’t completely been tested in India, due to a secular growth in the Indian markets. Moreover, the gestation period for a contra strategy is generally high and the investor needs to be patient for the strategy to bear fruit.
Brief History
The fund traces its inception to July 1999 and has been, in the past, managed by the likes of Sandeep Sabharwal and Sanjay Sinha. In its initial years the fund managed to deliver chart topping returns, and within five years of its inception managed to enjoy a recommendation as a ‘core’ holding. The fund actively manages its sectoral exposure, without having any bias towards any style (growth or value) or market capitalization. Concentration of holdings has been kept under check, thereby ensuring that volatility in returns is kept low.
True Contrarian?
At first look it would seem that the fund belies its contra tag. The top 10 holdings are not out of the ordinary. However, while one cannot label the fund a true contrarian, the flavour of this strategy is evident. The fund’s underweight status on the banking and financial sector is a case in point. While this strategy may have cost the fund dearly in recent times, it does offer much needed diversification benefits to most portfolios which are currently highly concentrated in the banking sector. Another plus is that the expense ratio of the fund is surprisingly low, which is usually a good barometer of disciplined fund management.
|
Period |
SBI Magnum Contra |
BSE100 |
|
3 Month |
-11.8 |
-8.66 |
|
1 Year |
-5.24 |
2.26 |
|
3 Year |
6.39 |
6.52 |
|
5 Year |
11.3 |
10.73 |
|
Inception |
21.33 |
|
|
Returns as of 17th March 2011. Returns less than 1 year are absolute, while greater than 1 year are annualized. | ||
|
Source: |
Accord Fintech | |
With the current uncertain political and economic environment facing the world, as well as the aftermath of Japan’s twin natural disasters, the fund’s bet on the energy sector may just prove to be a prudent move. As of now, recommend the fund to those investors looking to reduce the concentration of their portfolios to the banking sector.
Best to wait and watch
Consistency in returns is the key takeaway for the investor here, but if your investor is looking for chart topping returns, this is not the fund for you. The 21.33 per cent annualized return as of March 17, 2011 for a period of over a decade is testimony to this consistency. This has been achieved in spite of the two severe bear phases in the Indian equity market. You should brace your investors for phases of average performances. The past year - 2010 was below average for the fund and so far this year the fund has not broken the stalemate. With a new fund manager at the helm, some amount of skepticism has crept into the fund’s ability to bounce back. However, SBI Mutual fund has in the past proven its ability of insulating its funds from frequent fund manager changes.
