Benchmarked against BSE-200, Birla Sun Life Frontline Equity Fund has showed impressive downside protection. Based on the fund performance and its decent exposure to large-cap stocks, Swapnil Suvarna recommends this fund as a long-term investment to your investors looking to gain maximum returns, with minimum risk
Launched in August 2002, Birla Sun Life Frontline Equity Fund is benchmarked against BSE-200 index. The fund strategy is to generate long term income and distribute dividends by remaining fully invested in equities, across diversified sectors in line with the benchmark index. The scheme follows the strategy of varying the sector weights by ± 25 per cent or by an absolute figure of ± 3 per cent, whichever is higher, of the sector weights in the index. This implies that sectors with less than 3 per cent weight in the index are ignored. Overall, the fund identifies stocks across the selected sectors, which have earnings visibility and are likely to be less volatile. The fund is being managed by Mahesh Patil.
Portfolio Analysis
The fund portfolio has more or less mirrored its benchmark index in terms of sectors and relative scrips, mainly from the large cap space. The top ten picks in the portfolio has mainly been among the top 15 scrips of the benchmark’s holding. Over the years, the fund has remained significantly exposed to the banking, IT-software, refineries, pharmaceuticals, engineering and electric equipments sectors. Although the benchmark index has major exposure in metals & minerals sector, the fund has maintained low exposure throughout, but the portfolio exposure towards the tobacco sector has been considerable. The fund has been underweight on sectors like textile, shipping & logistics, sugar and fertilizer.
Overall, the fund portfolio is high on liquidity and quality, thanks to its focus on the promising large caps. Currently, however, the fund has increased its stake in airlines, which shows that the fund manager has not shied away from taking aggressive calls.
The fund manager has shown good downside protection, along with a strong intent towards gearing up its equity bet, at attractive levels when the market is performing well. In 2008 when the market collapsed, the fund manager resorted to cash holdings. As on March 2009, when the market began its rally, the fund had 27 per cent of its assets in cash, which helped them pick up attractive large cap bets at distressed value.
Performance Analysis
Since inception, the fund has registered a CAGR of 27.80 per cent against its benchmark which recorded a CAGR of 23.38 per cent during the same period. On the other hand, the fund has also rewarded its investors with regular dividends. Moreover during the 2008 recession, the fund arrested its downfall in comparison with the benchmark especially during the January to October 2008 period. At times, the fund performance has been subdued due to significant holding in cash, but its increase in the exposure to mid-cap stocks augmented the returns.
|
Period |
NAV (Rs) |
BSE SENSEX |
BSE-200 |
|
Since Inception |
27.80% |
22.66% |
23.38% |
|
5-year |
10.48% |
7.00% |
7.17% |
|
3-year |
4.12% |
1.66% |
1.75% |
|
2-year |
3.55% |
2.36% |
2.67% |
|
1-year |
8.18% |
7.18% |
5.02% |
|
6-month |
-10.75% |
-11.64% |
-13.26% |
|
3-month |
-0.26% |
-2.50% |
-0.84% |
|
Returns as on June 16 2011. Returns less than 1 year are absolute, while greater than 1 year is annualised. | |||
|
Source: Accord Fintech | |||
Recommendation
The fund scores on its commendable performance record and its major holding in promising large-cap space, which will maintain its long term stability. Moreover, the fund manager’s ability to consistently generate impressive returns with excellent downside protection makes it an obvious choice. We recommend this large-cap oriented fund to your investors who wish to take minimum risk and gain maximum returns in the long term.
