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Taurus Discovery
Fund is an aggressive fund from Taurus Asset Management Company. According to
the fund's style box, it belongs to the mid- and small-cap, blend category. The
fund is benchmarked against the CNX Mid-cap Index. This fund, which was started
in September 1994, currently has assets under management worth Rs 23.15 crore.
Fund performance
|
Scheme Name
|
2006
|
2007
|
2008
|
2009
|
2010
|
2011
|
2012*
| |
Taurus Discovery Fund(G)
|
10.42
|
100.71
|
-75.32
|
85.39
|
13.99
|
-30.45
|
| |
35.22
| |
CNX Midcap
|
29.01
|
76.93
|
-60.23
|
94.85
|
19.16
|
-31
|
30.49
| |
Category median
|
38.63
|
59.85
|
-55.43
|
81.35
|
18.96
|
-23.67
|
25.74
| |
*From Jan 1, 2012 - Sep 30, 2012
|
If we consider
the fund’s performance from 2006 to 2011, Taurus Discovery Fund has managed to
outperform its benchmark only in 2007, 2011 and year-to-date (YTD), while
underperforming in 2006, 2008, 2009 and 2010.
If the fund’s
performance is compared against the median for the diversified-equity category,
then Taurus Discovery has outperformed in 2007, 2009, and YTD (till Sept 30,
2012).
Portfolio characteristics
Number of equity holdings: Currently the fund holds 34 stocks
in its portfolio. This is lower than the median of 40 for the
diversified-equity category.
Historically, the
fund has had an average equity count of 36 stocks over the last five years.
The lowest number
of stocks in the scheme’s portfolio was 20 in October 2008 while the highest
count in the last five years has been 65 in June 2009.
Sector concentration: Taurus Discovery's exposure to top
three, five and 10 sectors is higher than the median for the diversified-equity
category.
|
|
Top 3
|
Top 5
|
Top 10
| |
Taurus Discovery Fund(G)
|
35.06
|
53.25
|
82.57
| |
Median-diversified
equity category
|
34.39
|
47.83
|
68.54
|
All figures in %
Stock concentration. The fund’s concentration in the top three
stocks is almost at par with the median for the diversified-equity category.
Its concentration in the top five and 10 stocks in its portfolio is higher than
median for the diversified-equity category.
|
|
Top 3
|
Top 5
|
Top 10
| |
Taurus Discovery Fund(G)
|
18.35
|
29.04
|
49.36
| |
Median-diversified
equity category
|
18.36
|
27.55
|
45.29
|
Thus, the fund
tends to run a more concentrated portfolio compared to its peer group
(diversified-equity funds). Such concentrated bets can work either in favour of
or against the fund. The swing in performance in either direction tends to be
sharp in such concentrated portfolios.
Expense ratio: The fund’s expense ratio is 2.5 per
cent. This is higher than the average of 2.16 per cent for the diversified-equity
category.
Risk. The fund has a higher standard deviation (calculated over a
three-year period) that is higher than the category median while its beta is
lower than the category median. Thus, broadly we can conclude that the fund’s
level of risk hovers around the median for the diversified-equity category.
|
|
SD
|
Beta
| |
Taurus
Discovery Fund(G)
|
1.0754
|
0.7635
| |
Median-diversified
equity category
|
1.0071
|
0.8058
|
Risk-adjusted return. The fund’s risk-adjusted return, as measured
by Treynor ratio and Sharpe ratio (calculated over a three-year period) is
lower than the median for the diversified-equity category.
|
|
Treynor
|
Sharpe
| |
Taurus Discovery Fund(G)
|
0.0137
|
0.0098
| |
Median-diversified
equity category
|
0.0251
|
0.0200
|
Cash allocation. The fund's average cash allocation
over the last five years comes to 9.75 per cent, which is way higher than the acceptable
limit of 5 per cent.
Under Sadanand Shetty,
cash level was highest at 18.32 per cent in
February of 2011. During the first quarter of 2012, cash level was at around 10
per cent, though since April 2012 it has been at around 5 per cent.
Portfolio strategy
2011: In 2011 the stock markets declined: the Sensex fell -24.83 per
cent, the BSE Mid-cap Index fell -34.78 per cent, and the BSE Small-cap Index
fell -14.63 per cent. That year the CNX Mid-cap Index fell -31.47 per cent. The
fund beat its benchmark narrowly with a return of -30.45 per cent.
In 2011 the
fund's average allocation to large-cap stocks was 48.78 per cent. Its average
allocation to mid-cap stocks stood at 38.88 per cent. In the declining market
of 2011, the fund raised its allocation to large-cap stocks (which are
considered to be safer and less volatile) from 46.54 per cent in January to
55.83 per cent in August and maintained similar levels till October, before reducing
it again to 36 per cent by the end of the year.
In 2011 the
fund’s cash allocation fluctuated dramatically. The fund began the year with a cash
allocation of 14.17 per cent in January, which rose to 18.31 per cent in February.
This must have curtailed the fund manager's options for investing, and hence was
brought down to 2.92 per cent by September (the large-cap exposure was at its
peak in August). Then once again cash allocation was increased to 12.87 per
cent by December. Average cash allocation for the year was a rather high 10.56
per cent.
In 2011 only the
BSE FMCG Index turned in a positive performance (9.27 per cent). All other
sectors gave negative returns: BSE Healthcare (-13.20 per cent), BSE IT (-15.62
per cent), BSE Teck (-16.52 per cent), BSE Consumer Durables (-18.13 per cent)
and BSE Auto (-20.30 per cent).
|
Sector
|
Jan
2011 (%)
|
Dec
2011 (%)
|
Raised/lowered
exposure (%age pts.)
| |
Diversified
|
1.64
|
9.51
|
7.87
| |
Mining
& Minerals
|
|
6.16
|
6.16
| |
TV
Broadcasting & Software Production
|
0.51
|
5.79
|
5.27
| |
Industrial Gases & Fuels
|
|
5.08
|
5.08
| |
Film
Production, Distribution & Entertainment
|
|
4.49
|
4.49
| |
Power
Generation/Distribution
|
2.41
|
6.69
|
4.29
| |
Household
& Personal Products
|
|
4.15
|
4.15
| |
Pharmaceuticals
& Drugs
|
2.19
|
6.00
|
3.81
| |
Pesticides
& Agrochemicals
|
3.45
|
5.76
|
2.31
| |
IT
- Software
|
10.00
|
5.69
|
-4.31
|
In 2011, the fund
raised its exposure to sectors such as diversified, mining and minerals, TV
broadcasting, industrial gases and fuels, and so on (see table above) quite decisively. Among its top 10 holdings, the
only sector to which the fund reduced its exposure was IT-software.
|
Sector
|
Fund
(%)
|
CNX
Mid-cap (%)
|
Over/under
weight (%age pts.)
| |
Diversified
|
9.51
|
2.79
|
6.72
| |
Mining
& Minerals
|
6.16
|
|
6.16
| |
Film
Production, Distribution & Entertainment
|
4.49
|
|
4.49
| |
Pesticides
& Agrochemicals
|
5.76
|
1.40
|
4.36
| |
TV
Broadcasting & Software Production
|
5.79
|
2.06
|
3.73
| |
Industrial Gases & Fuels
|
5.08
|
2.25
|
2.83
| |
Power
Generation/Distribution
|
6.69
|
4.96
|
1.73
| |
IT
- Software
|
5.69
|
4.73
|
0.96
| |
Household
& Personal Products
|
4.15
|
5.60
|
-1.45
| |
Pharmaceuticals
& Drugs
|
6.00
|
10.78
|
-4.78
|
As in December
2011
By the end of
December 2011, the fund was overweight on sectors such as diversified,
pesticides and agrochemicals, TV broadcasting and software production, and so
on (see table above). Many of the
sectors to which the fund had an exposure lay outside the index.
Among its top
holdings, the fund was underweight on sectors like pharma and household and
personal products.
Next, let us turn
to the fund’s stock allocation in 2011:
|
Company
|
Jan
2011 (%)
|
Dec
2011 (%)
|
Raised/lowered
exposure (%age pts.)
| |
Max
India Ltd.
|
|
5.08
|
5.08
| |
Indraprastha
Gas Ltd.
|
|
4.49
|
4.49
| |
PVR
Ltd.
|
1.64
|
5.77
|
4.13
| |
Rallis
India Ltd.
|
|
3.85
|
3.85
| |
Gujarat Mineral
Devp. Corpn. Ltd.
|
|
3.83
|
3.83
| |
Eros
International Media Ltd.
|
|
3.74
|
3.74
| |
Aditya
Birla Nuvo Ltd.
|
|
3.60
|
3.60
| |
GAIL
(India) Ltd.
|
|
3.52
|
3.52
| |
NIIT
Ltd.
|
1.69
|
3.61
|
1.92
| |
Divi’s
Laboratories Ltd.
|
3.45
|
4.10
|
0.65
|
In 2011, the fund
raised its exposure quite decisively to stocks like Max India, Indraprastha
Gas, PVR, and so on (see table above).
|
Company
|
Fund
(%)
|
CNX
Mid-cap (%)
|
Over/under
weight vis-à-vis index (%age pts.)
| |
Max
India Ltd.
|
5.77
|
1.09
|
4.68
| |
Indraprastha
Gas Ltd.
|
4.49
|
|
4.49
| |
PVR
Ltd.
|
5.08
|
0.60
|
4.48
| |
Rallis
India Ltd.
|
4.10
|
|
4.10
| |
Gujarat
Mineral Devp. Corpn.
|
3.85
|
|
3.85
| |
Eros
International Media Ltd.
|
3.83
|
|
3.83
| |
Aditya
Birla Nuvo Ltd.
|
3.61
|
|
3.61
| |
GAIL
(India) Ltd.
|
3.60
|
|
3.60
| |
NIIT
Ltd.
|
3.74
|
1.70
|
2.04
| |
DiviS
Laboratories Ltd.
|
3.52
|
2.41
|
1.11
|
By the end of
2011, the fund was overweight vis-a-vis its benchmark on stocks like Max India,
PVR, NIIT and so on (see table above).
As is evident from the table, the fund invests in a number of stocks that don't
belong to the index.
2012. Year-to-date (September 30, 2012) the
Sensex is up 21.40 per cent, the BSE Mid-cap Index is up 28.67 per cent, and
the BSE Small-cap Index is up 26.44 per cent. So far this year (September 30,
2012) the fund is up 35.22 per cent, ahead of its benchmark which is up 30.49 per
cent.
In 2012 the fund
has so far had an average allocation of 40.10 per cent to large-cap stocks,
47.51 per cent to mid-cap stocks and 4.83 per cent to small-cap stocks. This
year the fund has increased its exposure to large-cap stocks from 33.57 per
cent at the beginning of the year to 46.81 per cent by September.
The fund began
the year with a cash allocation of 8.85 per cent, which fell to 5.5 per cent by
August. So far this year the fund has had an average allocation of 6.90 per
cent to cash.
Year-to-date
(September 30, 2012) the top-performing sector indexes have been BSE Bankex
(43.54 per cent), FMCG (36.48 per cent), BSE Capital Goods (35.82 per cent),
BSE Realty (34.26 per cent), BSE Consumer Durables (31.33 per cent), BSE Health
Care (28.24 per cent) and BSE Auto (27.87 per cent).
|
Sector
|
Jan
2012 (%)
|
Sep
2012 (%)
|
Increased/reduced
exposure (%age pts.)
| |
Power
Generation/Distribution
|
6.27
|
12.85
|
6.58
| |
Construction
- Real Estate
|
2.59
|
7.03
|
4.43
| |
TV
Broadcasting & Software Production
|
6.21
|
10.65
|
4.43
| |
Household
& Personal Products
|
5.59
|
8.94
|
3.34
| |
Diversified
|
8.34
|
11.56
|
3.23
| |
IT
- Software
|
6.17
|
9.25
|
3.07
| |
Finance
Term Lending
|
|
2.74
|
2.74
| |
Bank
– Private
|
5.39
|
7.22
|
1.83
| |
Film
Production, Distribution & Entertainment
|
4.42
|
5.29
|
0.87
| |
Finance
- NBFC
|
6.99
|
7.04
|
0.06
|
As in Sept 2012
This year the
fund has raised its allocation quite decisively to sectors like power
generation and distribution, construction and real estate, TV broadcasting and
software production, and so on (see table
above).
|
Sector
|
Fund
(%)
|
CNX
Midcap (%)
|
Over/under
weight (%age pts.)
| |
Diversified
|
11.56
|
2.79
|
8.77
| |
TV
Broadcasting & Software Production
|
10.65
|
2.06
|
8.59
| |
Power
Generation/Distribution
|
12.85
|
4.96
|
7.89
| |
Film
Production, Distribution & Entertainment
|
5.29
|
|
5.29
| |
Construction
- Real Estate
|
7.03
|
2.49
|
4.54
| |
IT
- Software
Household
& Personal Products
|
9.25
8.94
|
4.73
5.60
|
4.52
3.34
| |
Bank
– Private
|
7.22
|
4.56
|
2.66
| |
Finance
– NBFC
|
7.04
|
4.50
|
2.54
| |
Finance
Term Lending
|
2.74
|
0.68
|
2.06
|
As in Sept 2012
By September
2012, the fund was decisively overweight vis-a-vis its index on sectors such as
diversified, TV broadcasting and software production, power generation and
distribution, film production, and so on (see
table above).
|
Company
|
Jan
2012 (%)
|
Sep
2012 (%)
|
Raised/lowered
exposure (%age pts.)
| |
Jyothy
Laboratories Ltd
|
3.38
|
6.79
|
3.41
| |
Max
India Ltd.
|
4.71
|
5.83
|
1.12
| |
Aditya
Birla Nuvo Ltd.
|
3.62
|
5.73
|
2.10
| |
PTC
India Ltd.
|
|
5.40
|
5.40
| |
PVR
Ltd.
|
4.42
|
5.29
|
0.87
| |
Power
Grid Corpn. Of India Ltd.
|
1.99
|
4.64
|
2.65
| |
Reliance
Capital Ltd.
|
2.54
|
4.23
|
1.70
| |
HCL
Technologies Ltd.
|
2.98
|
3.98
|
0.99
| |
Federal
Bank Ltd.
|
|
3.78
|
3.78
| |
Mindtree
Ltd
|
|
3.68
|
3.68
|
This year between
January and September the fund has increased its exposure to stocks like Jyothy
Laboratories, Max India, Aditya Birla Nuvo, and so on (see table above).
|
Company
|
Fund
(%)
|
CNX
Midcap (%)
|
Over/under
weight vis-à-vis index (%age pts.)
| |
Jyothy
Laboratories Ltd
|
6.79
|
|
6.79
| |
PTC
India Ltd.
|
5.40
|
|
5.40
| |
PVR
Ltd.
|
5.29
|
|
5.29
| |
Max
India Ltd.
|
5.83
|
1.09
|
4.74
| |
Power
Grid Corpn. Of India Ltd.
|
4.64
|
|
4.64
| |
Aditya
Birla Nuvo Ltd.
|
5.73
|
1.70
|
4.03
| |
HCL
Technologies Ltd.
|
3.98
|
|
3.98
| |
Federal
Bank Ltd.
|
3.78
|
|
3.78
| |
Mindtree
Ltd
|
3.68
|
|
3.68
| |
Reliance
Capital Ltd.
|
4.23
|
1.69
|
2.54
|
By September
2012, the fund was overweight vis-a-vis its index on stocks like Max India,
Aditya Birla Nuvo and Reliance Capital. As was the case last year, this year
too the fund has taken decisive positions in a number of stocks that lie
outside the index.
Fund Manager
This fund is
managed by Sadanand Shetty who took over charge in May 2010. Some of the other
funds at Taurus Mutual Fund that he manages are Taurus Starshare, Taurus Tax
Shield, Taurus Infrastructure Fund, Taurus Nifty Index Fund, and equity &
gold portions of the Taurus MIP Advantage. Of these funds, Taurus Tax Shield
and Taurus Infrastructure have good track records.
Conclusion
This fund does
not have a great track record. If you examine its calendar year wise returns,
it has beaten its index in only two of the last five calendar years (2007 to
2011). Lately, however, the fund manager seems to have engineered a turnaround.
The fund beat its benchmark in calendar year 2011 and it is also ahead in the
nine months of this year that have gone by.
Appendix
Sadanand Shetty,
Vice-President and Senior Fund Manager- Equity, shares his insight about Taurus
Discovery and his views on the market.
What is the goal of the fund?
As a fund manager the goal is to deliver returns to investors,
which is higher than the benchmark and also
the fund should be in top deciles consistently. We try to deliver this return
without taking incremental risk.
What is the strategy that you use
for picking stocks?
Strategy is generally dependent upon what is the underlying cycle
of the market.
For example if you think there is a growth market in the next 18
months then the fund will follow a growth strategy by buying into growth
stocks. If you think the economic environment is challenging, the IIP reflects
de-growth, high inflation, interest rates will be increased or it will not
witness any cut, or earnings expectation is on the downside; this will
invariably means that there will be a corrective market or soft markets and
hence a strategy suitable to such situation will be employed.
This outlook will depend upon the medium term, 6-12 months, and
long term which is beyond 12 months.
In the last quarter of the calendar year 2010, we had issues of
crude, interest rate, 2G scam, we had concern over double dip recession in US.
All of these were hovering over the market. In 2011 one more event was added to
this list, the European Crisis deepened. And the entire of last year went into
resolving these crisis’.
During headwinds, the strategy required is to protect the assets
in a market which seems to be going down. In this period not all stocks will
fall drastically, there will be some opportunities; some stocks will come out
as winners, hence it is important in this environment to find absolute idea.
The third important thing in such situations is to take tactical calls. In a
correcting market, there is a lot of volatility and this means there will be
many trading opportunities. Cash also plays an important role in slowdown.
How do you construct the portfolio of the fund?
We identify companies which will benefit from the current economic
environment and make them into core holding these will be among the top 10-15
companies. We do not tinker a lot with these stocks and let them mature as more
market participants invest in them and the stock price goes up. On the bottom
10-15 stocks we take tactical calls, which are generally attractive in
valuation.
What is your view of the current
economic scenario?
Our medium and long term view of the economy is good, and if you
notice then the same is reflected in the stock market.
Today we think there is a hope for revival, especially after
September 13 and September 14 of 2012, when Chidambaram took decisions that
would be considered as unthinkable. It was not unthinkable that the government had increased
diesel prices but the unthinkable part was that, no roll back this time.
Similarly the government's decision to cap the number of gas cylinders to six
is unthinkable to happen so soon. Also pushing through the pension and FDI reforms
despite the strong opposition was a big deal.
Primarily these are executive and administrative actions on power,
fuel, coal, and has direct impact on capex and investments cycle. Setting up of
national investment board and many such executive and administrative action does
not require parliamentary consent to go through but the fact that they were taken
are important. These actions collided with cheap valuation in the mid and small
caps space, this gives us the confidence that substantial returns will be
generated. We believe this trend will continue.
This will give us opportunity in different pockets. Our strategy
will be to look for companies which will give us absolute returns.
We believe, that there is a huge potential of re-rating of
companies, for the sake of understanding what we mean by re-rating is that, earnings
multiple goes from 10x to 14x. When re-rating occurs along with increase in
earnings, then it will give you substantially higher returns than the benchmark
returns. Part of this re-rating has already occurred and we have already
witnessed it, and many more are yet to be re-rated, hence there are many
opportunities.
Last year you had a huge cash
allocation. Was it by design?
Last year we were not gung-ho on the economy. Earnings were
slashed, GDP was falling, interest rates were high, and the strategy that I had
articulated earlier was what we had employed.
Considering the economic environment we were in high cash position
in most part of last year, though it was never static. And we changed that
strategy during the start of the year.
Going forward we plan to neither be high cash nor low cash.
This is a fundamental decision that we have taken. So we may have a cash band
of 2-3 per cent on the lower side and on the higher side it could be 7-8 per
cent.
Significant rallies have come around very unpredictably. Sharp
rallies have come when we are not expecting them at all. For example, in Dec
2011 when almost all participants were cutting targets then we saw a massive
turnaround in January, February and March of this year
It is very difficult to state when the turnaround will happen, or to
what extent will it take place. And once a rally takes place then finding the
right place to deploy the cash is also a challenge. The kind of company that
you would like to invest in, may not be available at the right price.
This results in hitting the portfolio, hence we have taken a
decision in principle that we will not work neither in either high cash nor in
low cash environment.
How do you choose stocks for the
portfolio? From a sectoral point there seems to be a bias in your portfolio
there are less Auto and very less IT.
The bench mark index for the fund is CNX Mid Cap, and this index
is a large basket. It is one of the best index in the country in terms of the
sheer quality of the companies. There are many Mid and Small size companies to
choose from. This segment is absolutely idea driven, these ideas are not based
on sectors but it’s the quality of the company.
The companies are chosen on a bottom-up approach. The allocation
in the portfolio could have bearing from a sectoral exposure point of view. For
example, if there are three companies which have been selected based purely on
idea but they belong to the same sector then I cannot overexpose to the sector,
hence will have to monitor the allocation level.
At times there is also this problem of not having any mid-cap in a
sector. For example in pure telecom you have Bharti and Idea, they are both
large cap companies. And similar case can be made about few other sectors.
The reason why some of the sectors are not there is because such
sectors do not have any good quality mid-size companies or if they have
mid-size companies then these companies are not available at a good price.
Since the investment is made based on the merit of the idea, so from one sector
there can be one company or there can be few set of companies.
All companies are chosen based on absolute ideas.
|