Based on the fund management’s ability to select quality mid-cap growth stocks, Swapnil Suvarna recommends IDFC Premier Equity Fund - Plan A as a good long term investment product through SIP for your aggressive investors only. However, the high exposure to ‘other equities’ warrants a close watch
Launched in September 2005, IDFC Premier Equity Fund - Plan A is benchmarked under BSE-500 and is being managed by Kenneth Andrade. The fund aims to generate long term capital appreciation by staying invested in small and medium size businesses with good long term potential which are available at cheap valuations. The fund management seeks to identify emerging themes and segment leaders which have a strong correlation to the growth of the economy. To this end, it invests in companies that are at an early stage in their life-cycle and are at the start of a period of high growth and profitability.
Portfolio Analysis
The portfolio reflects an aggressive, well balanced and prudent style of fund management. Over the years, the fund has maintained a diverse portfolio with less than 35 young growth stocks from the mid cap space. The fund manager has invested at reasonable levels in companies primarily on the basis of business fundamentals forecasting their profitability and sustainability of growth in cash profit.
Furthermore, the fund management has been biased towards sectors which are driven by consumer demand and which are undergoing evolution in their business environment. Over the years, the fund has remained significantly exposed to sectors like auto ancillary, consumer goods, NBFC, fertilizers, paints and textiles. However, when the entire equity fund space remained invested in banks since March 2009, this fund has remained underweight.
Also to minimize risk, it has been constantly monitoring the economic & business environment and changes in management strategy. For instance, the fund had exited companies like Pantaloon Retail, Spicejet and Emami following changes in the business outlook and management changes. Moreover, the fund has not been adventurous in chasing illiquid and momentum driven mid cap scrips. Overall, the fund has maintained good downside risk by having significant portion of its assets allocated towards debt and cash at times of uncertainty.
Surprisingly, the fund has invested a significant 24% of its assets in other equities. With no details available on the components of this ‘other equities’, it is difficult to evaluate the possible impact of this on the fund performance.
Performance Analysis
The fund has delivered commendable returns at controlled level of risk. Since inception, the fund has registered a CAGR of 21.81 per cent against a CAGR of 12.29 per cent of its benchmark. During the 2008 recession, the fund arrested its downfall in comparison with the benchmark. Over the past one year, the fund has generated an alpha of 4% over its benchmark index.
|
Period |
NAV (Rs) |
BSE SENSEX |
BSE 200 |
BSE 500 |
|
Since Inception |
21.81% |
13.23% |
12.72% |
12.29% |
|
5-year |
23.09% |
10.31% |
10.91% |
10.75% |
|
3-year |
7.62% |
1.97% |
2.00% |
1.85% |
|
2-year |
8.86% |
3.36% |
3.71% |
3.92% |
|
1-year |
6.07% |
-0.37% |
-2.05% |
-2.26% |
|
6-month |
-12.55% |
-11.94% |
-13.84% |
-14.26% |
|
3-month |
1.66% |
-5.17% |
-4.46% |
-4.18% |
|
Returns as on June 22, 2011. Returns less than 1 year are absolute, while greater than 1 year is annualised. | ||||
|
Source: Accord Fintech | ||||
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The fund management’s ability to identify growth stocks from the mid cap space, contain losses during unforeseen market conditions along with consistency in its approach towards asset allocation makes it a good long term investment product through SIP for your aggressive investors only. However, one has to understand that while there is potential of generating wealth, there is inherent risk too.
