Sunday, March 13, 2016

SBI Magnum Equity: Large-cap tilt provides a safety net

The market mood has turned distinctly nervous. And mid and small-caps that held up better than large-caps last year are now taking it harder on the chin. A large-cap oriented fund with a good track record may just be what the doctor ordered for frayed nerves. SBI Magnum Equity, a veteran of many market cycles, fits the bill.

Over the past few years, the fund’s equity holding has almost entirely been in large-caps (market cap exceeding ₹10,000 crore currently) — this is a change from the 15-20 per cent allocation to mid-caps earlier. Equity accounts for 90-99 per cent of the portfolio, with the exposure pared to the lower end when the market gets choppy. These attributes lend stability to the fund in volatile markets, though it may not deliver blockbuster returns during raging bull runs. In the past year, SBI Magnum Equity’s loss of about 9 per cent is much lower than the cuts many other large-cap funds have taken. This has helped it figure in the top quartile among peers.

Smart picks

The fund has also beaten its benchmark Nifty 50 consistently and comfortably (by 4 to 6 percentage points) across one to five-year periods. On a one-year daily rolling return basis, the fund beat the benchmark almost always last year, an improvement over the 73 per cent record over the past five years.

This has been aided by smart stock picks both within the Nifty 50 basket and outside. For instance, stocks such as Bajaj Finance have boosted returns. So have holdings such as Infosys and Kotak Mahindra Bank in which the fund raised stakes. Over longer periods, stocks such as Eicher Motors have been multi-baggers. Good sector choices too have helped. For instance, last year, it increased stakes in oil refiners that have benefited from pricing reforms and robust margins, while keeping off hydrocarbon explorers that bore the brunt of the crude oil rout.

SBI Magnum Equity has a focused portfolio rarely exceeding 30 stocks, so holdings in some stocks can veer high. For instance, HDFC Bank and Infosys each account for more than 9 per cent of the portfolio currently. But with such stocks invariably being well-established bluechips, the risk quotient is mitigated. The portfolio mix suggests a tilt towards growth stocks. Interestingly, for a long time, the fund has held two unlisted stocks, Salora Capital and Numero Uno International.

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