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Fund Analysis: Reliance Top 200: Sound performer
Tue, Sep 04, 2012
Source : Sanjay Kumar Singh, Citrus Interactive

Reliance Top 200 is a large-cap growth fund that was started in July 2007. Currently the fund has Rs. 808.64 crore under management. It is benchmarked against the BSE 200 Index.

 

 

Fund performance

Scheme name

YTD

1-yr

3-yr

5-yr

Since inception

Reliance Top 200-Ret(G)

21.82

-2.12

5.75

--

4.58

BSE-200

14.24

-6.29

3.45

2.22

--

All figures in %; as on July 31, 2012

Year-to-date (July 31, 2012) the fund has given a return of 21.8 per cent. It currently leads its benchmark by a wide margin of 7.57 percentage points. The fund has also beaten its benchmark over the one- and three-year horizons. Since inception (July 2007) the fund has given a compounded annual return of 4.58 per cent, but that is understandable given the turbulent times equity markets have been passing through in recent years. 

Scheme name

2011

2010

2009

2008

2007

Reliance Top 200-Ret(G)

-26.80

19.36

69.96

-49.31

--

BSE-200

-27.29

16.22

83.65

-56.73

60.44

All figures in %; as on July 31

Next, let us turn to the fund's calendar year wise performance to see if it has been consistent. The fund has beaten its benchmark in three of the four complete calendar years for which it has existed. The only year in which it failed to beat the index was 2009. That year while the index rose 83.65 per cent, the fund lagged behind by a margin of 13.68 percentage points.

The fund has provided sound protection to its investors in declining markets. In both 2011 and 2008, when the markets were falling, the fund managed to decline less than its benchmark.

Portfolio characteristics

Number of equity holdings. The fund currently holds 34 stocks in its portfolio. This is lower than the median number of stocks in the portfolios of all diversified-equity funds, which currently stands at 40.5.  Thus, it is among the more concentrated funds within the diversified-equity category.

Even historically the fund has always had a concentrated character. We have data available since September 2007. Over this period the average number of stocks in the fund's portfolio has been 29.30. The maximum number of funds it has held over this period was 39 in March 2012. The stock count has gone as low as 24 (October 2009) in the past

Sector concentration. The fund's concentration in the top three sectors in its portfolio is marginally lower than the median for the diversified-equity category. Its concentration in the top five and top 10 sectors in its portfolio, however, is marginally above the median for the diversified-equity category.

 

Top 3

Top 5

Top 10

Reliance Top 200-Ret(G)

31.18

48.50

69.44

Median-diversified equity

33.43

46.42

67.46

All figures in %;

Company concentration. The fund's concentration in the top three, five, and 10 stocks in its portfolio is higher than the median for the diversified-equity category.

 

Top 3

Top 5

Top 10

Reliance Top 200-Ret(G)

20.01

29.54

48.32

Median-diversified equity

19.04

28.56

46.2

 

Based on an examination of the number of equity holdings in its portfolio, sector concentration and company concentration, one can conclude that the fund belongs to the more concentrated half of the diversified-equity category.

Turnover ratio. According to the fund's latest portfolio disclosure, it had a turnover of 94 per cent. This is higher than the median of 75 per cent for the diversified-equity category.

In this case, the higher than median turnover ratio seems justifiable given the good returns that the fund manager has managed to fetch (we take a dim view of a fund with a high turnover ratio and poor returns, since it implies that the fund manager has added to trading costs without achieving any gains).

Expense ratio. The fund currently has an expense ratio of 2.11 per cent, which is slightly lower than the median of 2.34 per cent for the diversified-equity category.

Cash calls. Between September 2007 and July 2012 (the period for which we have data available), the fund's average allocation to cash has been 5.33 per cent. The fund's highest cash allocation was 20.67 per cent in December 2008 (the period when turbulence was high owing to the global financial crisis).

In recent times the fund's allocation to cash has been low. The last time it was in double digits was in April 2009.

While a high allocation to cash can stem a fund's decline in a falling market, the danger therein is that a sudden rally in the market could leave the fund on the sidelines.

Risk measures. A look at risk measures such as standard deviation and beta reveals that the fund has a higher level of volatility than the median for the diversified-equity category.

 

Standard deviation

Beta

Reliance Top 200-Ret(G)

1.0937

0.9270

Median-diversified equity

1.0096

0.80

Risk-adjusted return. The fund's level of risk-adjusted return is marginally lower than the median for the diversified equity category.

 

Treynor

Sharpe

Reliance Top 200-Ret(G)

0.02218

0.01880

Median-diversified equity

0.02615

0.0210

Portfolio strategy

2011. In 2011 the 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 -43.62 per cent. That year the BSE 200 Index fell by -27.29 per cent while the fund fell marginally less by -26.80 per cent.

The fund started the year with an 85.23 per cent allocation to large-cap stocks. This was reduced to 79.13 per cent by the end of the year. The fund's average allocation to large-cap stocks stood at 85.72 per cent during the year.

In April 2011 the fund had an exposure of 1.92 per cent to mid-cap stocks. This was gradually raised to 10.09 per cent by the end of the year. Average exposure to mid-cap stocks stood at 4.9 per cent during the year.

Exposure to small-cap stocks was also miniscule – an average of 2.16 per cent between January and September.

Exposure to 'other equities' averaged 5.43 per cent.

Exposure to cash averaged 4.20 per cent during 2011. Thus, the fund chose to remain invested in the markets rather than shift into cash in a big way in a declining market.

In 2011 only the BSE FMCG Index turned in a positive performance (9.27 per cent). All the 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 allocation-2011

Sector

Mar-11 (%)

Dec-11 (%)

Raised/reduced allocation (%age points)

IT - Software

16.52

14.14

-2.38

Refineries

13.40

12.27

-1.14

Bank - Private

14.34

8.93

-5.40

Automobiles - Passenger Cars

7.11

4.39

-2.72

Pharmaceuticals & Drugs

3.30

9.00

5.70

Electric Equipment

1.94

6.07

4.13

Cigarettes/Tobacco

1.71

4.67

2.96

All figures in %

In March 2011 the fund’s highest allocation was to IT software. This was reduced by -2.38 percentage points by December, but the sector still remained the fund's top holding. The next highest allocation was to private banks. Exposure to this sector was brought down considerably (-5.40 percentage points) by the end of the year. Exposure to refineries and auto (passenger cars) was also reduced during the year.

Among the sectors to which the fund raised its exposure during the year were pharma, electric equipment and cigarettes and tobacco.

Fund versus index-December 2011

Sector name

Fund holding* 

BSE 200*

Over/under weight**

IT - Software

14.14

10.68

3.46

Refineries

12.27

7.03

5.24

Pharmaceuticals & Drugs

9.00

5.58

3.42

Electric Equipment

6.07

1.46

4.61

Automobiles - Passenger Cars

4.39

0.72

3.67

Retailing

4.13

0.08

4.05

Bank - Private

8.93

13.14

-4.21

Cigarettes/Tobacco

4.67

6.13

-1.46

Figures in %; **%age points

By December 2011 the fund was overweight compared to its index on IT software, refineries, pharma, electric equipment, auto (passenger cars) and retailing.

Among its large holdings, it was underweight compared to its index on private banks and cigarettes and tobacco.

2012. Year-to-date (July 31, 2012) the BSE Sensex is up 11.53 per cent, the BSE Mid-cap Index is up 17.08 per cent and the BSE Small-cap Index is up 16.18 per cent. Year-to-date (July 31) the fund is up 21.82 per cent, much ahead of its benchmark, which is up only 14.24 per cent.

So far this year the fund's allocation to large-cap stocks has averaged 80.51 per cent. Allocation to mid-cap stocks has been raised this year, averaging 11.68 per cent so far. Exposure to small caps has been minuscule so far. Exposure to 'other equities' has averaged 5.65 per cent, about the same level as last year.

Exposure to cash has been reduced even further this year, averaging 2.20 per cent so far.

The best-performing indexes this year are BSE Bankex (30.12 per cent), FMCG (35.03 per cent), Healthcare (21.65 per cent), Consumer durables (19.16 per cent), Realty (19.04 per cent) and Capital goods (19 per cent).

 Sector allocation-June 2012

Sector

Mar-12*

Jun-12*

Raised/reduced allocation**

Pharmaceuticals & Drugs

11.09

11.19

0.10

Bank - Private

9.01

9.36

0.35

Bank - Public

4.22

6.60

2.38

Retailing

3.82

4.91

1.09

Telecom Service  Provider

4.54

4.67

0.13

Refineries

11.04

10.89

-0.15

IT - Software

15.24

9.53

-5.71

*Figures in %; figures in %age points

This year the fund has raised its allocation to pharma, private-sector banks, public-sector banks (by quite a decisive margin of 2.38 percentage points), retailing and telecom service providers.

Among its large holdings, it has reduced its allocation to refineries (marginally) and IT software (-5.71 percentage points).

Sector name

Fund holding* 

BSE200*

Over/underweight**

Pharma

11.09

5.58

5.51

Refineries

11.03

7.03

4.00

Finance - Housing

8.53

4.89

3.64

Retailing

5.21

0.08

5.13

Bank - Public

4.95

4.61

0.34

Telecommunication - Service  Provider

4.19

1.9

2.29

IT - Software

9.06

10.68

-1.62

Bank - Private

8.80

13.14

-4.34

*Figures in %; figures in %age points

By July 2012, the fund was heavily overweight compared to its index on pharma, retailing, refineries, housing finance and telecom service providers. It was marginally overweight on public sector banks.

Among its major holdings it was underweight compared to its index on IT software and private-sector banks.

Fund manager

The fund is managed by Ashwani Kumar, who has been looking after this fund since June 2007. He has been assisted by Shailesh Raj Bhan who also began working for this fund in June 2007.

Besides Reliance Top 200, Kumar also manages an equity-linked savings scheme called Reliance Tax Saver. This fund, which he has been managing since August 2005, has a good track record. He has also been managing Reliance Vision, a large-cap growth fund, since January 2004. This fund has an average track record.

Conclusion

Reliance Top 200 has a sound track record. Barring the bull market surge of 2009 (which took a lot of fund managers by surprise), the fund has stayed ahead of its benchmark.

This is a concentrated fund with a high turnover strategy. Such a fund tends to be riskier than a more diversified fund with low churn. The advantage of a concentrated fund is that with fewer stocks to manage, the fund manager can focus on his task better. But he must make each of his picks count.

In case of Reliance Top 200, investors have been rewarded with good returns for the risks they have faced in this fund.

 
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