Mutual funds for long-term investors -- V

# 21: Standard Chartered Premier Equity -- Wrinkle free

Equity: Diversified

A rough patch last year does not dent Standard Chartered Premier Equity's appeal. Its mid-cap fund started off reasonably well but lost massively in the quarter ended June 2006. While an average peer lost 13.6 per cent, this one was down 24 per cent. Subsequently, things have improved tremendously for the fund.

The second quarter of 2007 has been exceptionally good as it beat the average peer by an unbelievable margin of 17 per cent. This made it the only non-infrastructure fund to be among the top five diversified equity funds over a one-year horizon.

That success owes much to fund manager Kenneth Andrade, who took over in February this year.

He has not completely overhauled the portfolio but gradually reduced exposure to metals. He does not shirk from taking concentrated bets in specific sectors. While the fund has been betting upon the services sector over the past year in May it clocked in a not-so-shy 43 per cent. Even now, it consumes over a quarter of the fund's assets. His stock picks like Srei Infrastructure Finance have also proved to be very rewarding.

This portfolio is true to its convictions. Unlike its peers in the mid-cap space, this fund does not have a bloated portfolio. Its holdings are fairly evenly distributed amongst 35 stocks. By taking a meaningful exposure to a small number of promising stocks, the fund manager is able to leverage its small size to its advantage.

Taking bigger bets in small-and mid-caps is bound to increase the risk, but then that's what this fund is all about. This relatively smaller mid-cap fund is a compelling option to add zing to your portfolio.

# 22: Sundaram BNP Paribas CAPEX Opp.- G -- Ride cautiously

Equity: Diversified

Though it joined the infrastructure party only in September 2005, Sundaram Capex Opportunities has shown promise. With annualised returns of 56 per cent, it was one of the top five diversified equity funds last year with returns of over 70 per cent.

Despite a portfolio of around 60 stocks, the fund manager refrains from frequent churning. Patterns of continuity are apparent with as many as 17 stocks entrenched in the portfolio since launch, and most of them among the major holdings.

But this should not be interpreted as a sign of safety. The portfolio of 60 stocks appears deceptively diversified. The fund remains essentially a concentrated offering with the top three holdings averaging at 23 per cent in the last 12 months while a long tail of stocks have a negligible exposure of under 1 per cent.

This puts tremendous pressure on the top holdings to perform. While the fund has been lucky with most of them, it has not managed to completely stay out of trouble. It erred with its entry/exit timing in stocks like Avaya Global Connect, HEG, Pratibha Industries, Universal Cables and Valecha Engineering.

Though the investment mandate is focused on the infrastructure segment, the portfolio has been broadened to include metal and energy stocks, in addition to the obvious capital goods and construction picks.

Despite the impressive performance, this top-heavy, thematic fund shouldn't form the core of your holdings. Invest a limited portion of your portfolio in such a fund if you want to ride the infrastructure.

# 23: Sundaram BNP Paribas Select Focus -- Focused aim

Equity: Diversified

This fund's no-nonsense, focused approach has resulted in decent returns to bag a four-star rating.

With a mandate to invest in not more than 30 stocks, with a particular focus on three themes, a concentrated portfolio is the legitimate outcome (the top five holdings account for 40 per cent of the assets).

Though an aggressive offering, the risks are partly mitigated by a strong bias for large-cap stocks. The fund anchors itself in the big and prominent companies of the sector or themes it believes to be most promising. Going by its returns, it has been fairly successful in implementing this strategy.

Naturally, this mandate also translates into a high portfolio turnover. Most of the stocks have remained in its portfolio for less than six months. Many others keep moving in and out frequently.

In fact, many a times it seems to overdo it as stocks are rotated in the space of just a couple of months. But the fund manager deserves a pat on the back for her success in sector rotations.

For example, the fund had timed its entry in the technology sector in the last quarter of 2002 to perfection. It also exited the sector at the right time to avoid the losses in the subsequent two quarters when technology stocks lost massively.

Similarly, the fund manager was spot on with the entry into the metal sector in the second quarter this year. More such instances of apt sector moves are visible in its portfolios.

Another striking trait of the fund is the proactive way in which it moves into cash to protect the downside during market crashes. A fairly aggressive offering, this fund has delivered what it set out to do.

# 24: Tata Balanced -- Showing talent

Hybrid: Equity-oriented

Tata Balanced is a worthwhile representative of its type. This year, this perennial outperformer has found itself near the head of the pack.

A combination of low exposure to auto stocks, holdings in financial services and its long-term strategy in the basic-engineering, metals and energy space paid off. In the technology space, losses were minimised by astute stock picking and leveraging on smaller companies.

By and large, the fund plays it safe and does not make any adventurous moves. This was not the case earlier though.

Last year, when the market corrected, it got badly hit and lost 25 per cent in a single month (May 12 - June 13, 2006). The outcome was a swift move to large caps from a dominant mid-cap portfolio. This was a well timed lesson because large caps began to rally soon after.

Over the past one year, it has been doing well and frequently outperformed the average.

Initially, one was advised to go with this fund if they were willing to nap during the bear phases since it performed dismally during market downturns. Not so after its portfolio revamp. This year, we were pleasantly surprised to find that the fund lost a mere (-) 1.55 per cent at the end of March 2007 (category loss: (-) 3.23 per cent).

However, it has been very erratic in rebalancing its portfolio, swaying from a 65 per cent to 74 per cent exposure to equities.

Though one of the smallest of the four funds featured here, its size seems to have worked to its advantage. With its excellent performance this year, we are very bullish about the future of this fund.

# 25: UTI Infrastructure --  Heavy returns

Equity: Diversified

In its short existence, UTI Infrastructure has more than proven the merit of its theme.

The first infrastructure fund to be launched, it was a classic example of the early bird getting the worm. It found a spot in the top quartile of the category in 2005, generating 57 per cent returns and outdoing the average peer by a margin of more than 10 per cent.

In 2006, it leapt to the topmost slot with returns of 61.48 per cent.

This year, despite a few bumps in the road in the first quarter, when real estate and cement corrected sharply, the fund is going great guns. Its year-to-date returns (as on October 11, 2007) were 49.53 per cent, sharply ahead of the category average of 33.40 per cent.

When you are catapulted to the No.1 slot with such superior performance, you can't help but attract attention. As a result, its assets under management rose from under Rs 60 crore (April 2004) to over Rs 1,4000 crore at present.

Though spread across stocks of different market caps, of late it has developed a bias for large-cap stocks. According to the September 2007 portfolio, large caps concerned 61 per cent of the assets.

Despite being a thematic fund, it has a reasonably diversified portfolio of 40-45 stocks. Naturally, capital goods, construction and energy dominate the portfolio, but this infrastructure fund also has a significant exposure to metals and technology.

This one makes for a worthy and diversified selection if you want to bet on the capital expenditure wave sweeping across the country.

Mutual funds for long-term investors - I

Mutual funds for long-term investors - II

Mutual funds for long-term investors - III

Mutual funds for long-term investors - IV