SBI Magnum Emerging Businesses began as a slow performer but since early 2009 it has been consistently outperforming its benchmark. Swapnil Suvarna feels the fund stands to benefit in the long run from the opportunities thrown up in the uncertain markets.
Launched in October 2004, SBI Magnum Emerging Businesses fund is benchmarked under BSE 500 index. The fund has been primarily investing in emerging themes - outsourcing or with an export orientation or that are globally competitive but he management does not shy away from evaluating emerging themes that are domestically focused and have growth potential. The fund is managed by R Srinivasan.
Since inception, the fund has registered a compounded annualized growth return (CAGR) of 23 per cent against its benchmark which recorded a CAGR of 16 per cent. Although, the fund has been a slow performer in the beginning, since early 2009 the fund has been consistently outperforming its benchmark generating reasonable alpha.
Across various market cycles, the fund scores on its exhibition of excellent downside protection. In the past one-year when the domestic equity markets have been highly volatile, the fund has declined mere 1% while the BSE 500 had slumped 20%. The fund’s opportunistic investment in fundamentally sound companies from attractive sectors has paid off superbly.
NAV BSE-500 Since Inception 23% 16% 5-Years 10% 6% 4-Years 2% -3% 3-Years 33% 16% 2-Years 20% -1% 1-Year -1% -20% 6-months 4.70% -13.70% 3-months -1.40% -9.80% Returns as on October 14, 2011. Returns less than 1 year are absolute, while greater than 1 year is annualized. Source: Accord Fintech
The fund manages a portfolio with around 90 percent of its assets invested in a mix of mid-and small-caps identified through bottom-up strategy while the remaining 10 percent is held in cash. The idea behind preserving cash is to take advantage of attractive opportunities in this volatile phase. This approach helps the fund manager mitigate volatility in returns.
The fund management has been biased towards sectors which are driven by consumer demand and sunrise sectors having attractive business environment with growth opportunity. The management has stayed away from those sectors which are interest rate sensitive but at times have taken smart contrarian calls. For instance, the fund is invested in least favored sectors like railway wagons, airlines and travel services. More importantly, the fund manager has shown tremendous conviction in his stock pickings and avoided unnecessary churning which has enhanced the fund performance significantly.
Our Point of View
The current uncertainty in the equity market outlook provides an opportunity to the fund to benefit in the long-run from the scrips that are available at the attractive levels. Even though mid-cap focused funds have higher risks, in the long-run their potential to deliver high-return is substantial.
Overall the consistency of generating impressive alpha has proved the management’s ability to identify good stocks in the volatile space of mid- & small-cap along with high conviction. You can recommend investments in this fund to investors looking to generate superior alpha in long-term.
