Sunday, January 24, 2016

BNP Paribas Long Term Equity: Rides market rallies with smart calls

BNP Paribas Long Term Equity is a good choice for investors looking for equity-linked savings schemes. Called the BNP Tax Advantage Plan until September 2014, the fund sports a good track record in the last five years and also displays the ability to rightly judge market direction. Investments in this fund up to Rs.1.5 lakh qualify for tax deduction under Sec 80 C and carry a lock-in of three years.

Strategy and performance

Unlike tax-saving funds such as Franklin Taxshield, this fund takes quite a bit of exposure to mid-cap stocks (those with market capitalisation of Rs.10,000 crore and below). It normally has a mid-cap exposure of 15-20 per cent, which is moved up to take advantage of market rallies. It latched on to the 2014 rally, for instance, by gradually pushing up mid-cap exposure to 30 per cent of its portfolio.This helped the fund emerge on top in pure mid-cap-led rallies such as in 2012. In 2012, its mid-cap exposure moved up to 37 per cent of its equity holdings. During corrective phases in the markets, the fund contains losses by bringing down equity exposure to 90-95 per cent.

Although the fund had a chequered performance earlier, these strategies have helped the fund pull up its socks since 2011. Over one-, three- and five-year periods, the fund has outperformed its benchmark (CNX 200 since April 1, 2014; BSE 200 earlier) by 7-9 percentage points. It has matched or bettered returns of peers such as ICICI Pru Long Term Equity and Franklin Taxshield in these periods. The turnaround in fortunes has also coincided with the change in fund manager to Shreyash Devalker, in 2011.


The fund normally holds 40-50 stocks in its portfolio, and takes 5-8 per cent exposure in its top five holdings. Banks and software have always been the preferred sectors. In the last one year, the fund has pushed up its holdings in private sector banks, such as IndusInd Bank and Kotak Bank. These banks have shown better promise than beleaguered public sector banks saddled with NPA issues.

With auto sales showing a cyclical recovery, the fund has capitalised on this pegging up stakes in stocks, such as Maruti Suzuki and entering Tata Motors and Wabco. It is currently betting on an economic recovery by being overweight on sectors such as engineering and construction. Telecom holdings have also moved up in the last one year. The fund now holds 6-7 per cent each in Bharti Airtel and Idea Cellular.

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