Unconventional performer

Lahar Bhasin recommends DSP Blackrock Top 100 as a core holding for its consistent long term performance

As the name suggests, the fund invests in the top 100 companies by way of market capitalisation. Barring its performance in 2010 when the fund delivered below average returns, the fund has been amongst the better performers in the large cap space. The performance so far this year has been more encouraging. The year to date return as of 6 April 2011 at -3.22 per cent is better than the -3.9 per cent loss registered by the benchmark, BSE 100. Similar downside protection was also offered in the downturn of 2008. At 15.54 per cent compounded annualised, the five-year return delivered by the fund is amongst the best in the large cap space.

The fund management is not conventional and the management doesn’t hesitate from investing outside the consensus. For instance compared to its peers, DSPBR Top 100 had a much higher stake in the IT space, offering much needed diversification to portfolios which are skewed to the banking sector. Investors can also expect concentrated bets to be taken on single stock holdings, which can vary between 10-15 per cent of assets held. There is no sector or stock bias in identifying such companies. However, each of these concentrated holdings is accompanied by a strategy of systematic profit booking once price targets have been met. Consequently, there is considerable churn in the portfolio though this churn has not affected the expense ratio significantly which is kept under a tight check. Neither has the strategy led to a significant increase in volatility in returns. As a result the fund scores well on the risk adjusted returns front, making it amongst the better ranked schemes.

While the indicative asset allocation is 90-100 per cent in equities, the fund adopts a high cash strategy in times of a market downturn, with the exposure to equities slipping below 65 per cent. Investors ought to be aware that such a strategy, while offering downside protection is fraught with its own set of risks. A case in point was the reluctance by the management of DSPBR Top 100 to abandon the high cash strategy in 2009. This cost the fund dearly when the market began rallying and the management had to work hard at regaining lost ground.

Management Expectations

Apoorva Shah has been managing the fund for the last five years. Before investing in this fund investors should be aware that Apoorva Shah cautions against expecting a significant bull run in 2011. At most, he expects a 15 -20 per cent uptake in the top 100 companies. His assessment of a correction in 2011 has so far been correct, with the fund displaying higher than usual cash allocation since January 2011.

Typical of a large cap fund, DSPBR Top 100 is likely to show a strong uptake at the beginning of a rally, with returns being average as the rally moves to the smaller caps. Based on its management’s reputation as well as a robust long term track record, the fund can be recommended as a core holding.