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Sundaram S.M.I.L.E. Fund: Aggressive pure mid cap play
Mon, Apr 18, 2016
Source : Jeni Shukla, Citrus Interactive

Sundaram Small and Medium Indian Leading Equities (S.M.I.L.E) Fund is a midand small cap oriented equity diversified fund that aims to achieve capital appreciation by investing in diversified stocks that are generally termed as small and mid-caps.The fund was launched in February 2005and was benchmarked against the Nifty Free Float Midcap 100 index.The benchmark was changed from August 2013 to S&P BSE Small Cap Index.The fund has an AUM of Rs. 967crore as on March 31, 2016.The fund has hardly seen any increase in size in the last one year.

Performance:

Sundaram S.M.I.L.E Fund has shown better returns vis-à-vis its benchmark and the equity diversified category average in the 3- and 5-year periods. However, its relative performance has deteriorated sharply in the last 1 year – and it has shown significant underperformance compared to both - the benchmark and category average. 


6 Months

1 Year

3 Years

5 Years

Since Inception

Sundaram S.M.I.L.E Fund

-7.17

-10.01

31.51

15.82

18.11

S&P BSE Small-Cap Index

-4.35

-3.2

21.92

5.21

 

Category Average

-3.63

-5.82

19.78

11.91

NA

Rank

142/157

137/156

9/142

31/135

NA

Figures are in % as on March 31, 2016; Returns above 1-year in Compounded Annual Growth Rate (CAGR)

The fund outperformed its benchmark as well as category average in calendar year 2012, 2014 and 2015. In 2011 and 2013 it did better than the benchmark but underperformed compared to the category average. 

Scheme Name

2011

2012

2013

2014

2015

Sundaram S.M.I.L.E Fund

-32.72

44.77

-5.02

108.74

7.79

S&P BSE Small-Cap Index

-42.61

32.97

-11.23

69.24

6.76

Category Average

-23.92

34.13

5.38

54.08

3.7

Rank

128/133

21/138

140/142

2/145

34/153

All figures in %

Risk: In terms standard deviation(measured over last three years) the fund has taken higher risk compared to the category median whereas in terms of beta (measured over last three years), the fund has taken lower risk compared to the category median.

 

Standard Deviation

Beta

Sundaram S.M.I.L.E Fund

1.09

0.84

Category Median

0.92

0.86

 

Risk-adjusted Returns: In terms Treynor and Sharpe ratio (measured over last three years), the fund has provided lower risk-adjusted returns than the category median.

 

Treynor

Sharpe

Sundaram S.M.I.L.E Fund

0.016

0.01

Category Median

0.02

0.02

 

Portfolio Characteristics:

Sector Concentration:  The fund’s concentration in the top 3, 5 and 10 sectors is significantly lower than the category median.

 

Top 3

Top 5

Top 10

Sundaram S.M.I.L.E Fund

23.2

34.96

55.88

Category Median

37.63

50.87

71.34


Company Concentration: The concentration of funds in top 3, 5 and 10 companies in its portfolio is much lower than the category median highlighting lesser risk of the fund.

 

Top 3

Top 5

Top 10

Sundaram S.M.I.L.E Fund

11.37

17.5

31.18

Category Median

19.83

28.86

45.54

Number of equity holdings: The fund currently holds 59 stocks in its portfolio (March 31, 2016), which is higher than the median stock count for the diversified-equity category, which currently stands at 45. Based on equity count the fund runs a diversified portfolio compared to its peer set. The fund has gradually increased its number of holdings in the last 5 years.

Equity count, sector concentration and company concentration, quite clearly indicate that the funds maintain a fairly diversified portfolio. 

Cash allocation: Its cash allocation at the end of March 2016 was 2.16 per cent. The average cash allocation for last five years is 2.07 per cent. Its maximum allocation to cash over last two years was 7 per cent in February 2015 and lowest was -1.92 per cent in May 2015.

Portfolio Insights: The top 5 sectors include Cement & Construction Materials, Engineering - Industrial Equipments, Engineering – Construction, Pharmaceuticals & Drugs and IT – Software.

The fund’s exposure to cyclical stocks currently is 78% followed by Defensives with 8% and Services with 11%. The Top five holdings are Strides Shasun Ltd., V-Guard Industries Ltd., KarurVysya Bank Ltd., AshokaBuildcon Ltd. and PNC Infratech Ltd.

The portfolio doesn’t have a single holding which is above Rs. 10,000 crore market cap.

10% of the portfolio is invested in stocks above Rs. 5,000 crore market capitalisation. 72% of the portfolio is invested in companies between Rs. 1,000 crore and Rs. 5,000 crore market capitalisation and the remaining 16% is invested in companies below Rs. 1,000 crore market cap. The fund currently is invested 100% in mid and small cap stocks and has no exposure to large caps.

In the last six months the fund has bought stocks of Strides Shasun Ltd., Carborundum Universal Ltd., VA Tech Wabag Ltd., Navkar Corporation Ltd., Quick Heal Technologies Ltd.,Indian Hume Pipe Company Ltd. and Max Ventures And Industries Ltd. 

Stocks ofGrindwell Norton Ltd., Ashok Leyland Ltd., CCL Products (India) Ltd., Mcnally Bharat Engineering Company Ltd., Polaris Consulting & Services Ltd., Allahabad Bank, GIC Housing Finance Ltd., Shanthi Gears Ltd. and Usha Martin Ltd. have been sold in the last 6 months.

 

Process:

Sundaram S.M.I.L.E. is an aggressively managed fund. The fund manager tries to generate capital appreciation by taking active sector, stock, trading and cash calls. Mid-cap stocks are defined as those with a market cap that is lower than that of the 50th stock by market cap on the NSE and small-cap stocks shall be those with a market cap that is lower than that of the 100th stock on the NSE. At least 65% needs to be invested in midcap stocks (including investment in derivatives). The large cap exposure cannot exceed 35% of the total corpus. The maximum investment in money market instruments is 15%.

The investment focus of this scheme is to respond to the dynamically changing Indian economy by moving its investments amongst different sectors as prevailing trends change. The focus of this scheme is also to normally provide to investors a diversified portfolio of stocks.The Investment Manager has a research set up that works to identify investment opportunities through continuous research on sectors and companies. The analysis focuses on the past performance and future prospects of the company and the business, financial health, competitive edge, managerial quality and practices, minority shareholder fairness, transparency. Companies that adequately satisfy the prescribed criteria are included in the portfolio. The weights of individual companies will be based on their upside potential to downside risk. 

The fund’s expense ratio is 2.59% which is much higher than the category average of 2.33%. The fund has an exit load of 1% on or before 12 months.  Minimum investment required for the fund is Rs. 5,000.

 

Fund Managers:

The fund is managed by Mr. S. Krishna Kumar.

Krishna Kumar is the Chief Investment Officer of Equities at Sundaram Asset Management Company. He is the Fund Manager of Sundaram Select Mid Cap, Sundaram S.M.I.L.E, Sundaram Select Small Cap Series, Sundaram Select Micro Cap Series, Sundaram Tax Saver, Sundaram Value Fund. He has been managing Sundaram S.M.I.L.E since 2006.

Krishna Kumar is a BE from Regional Engineering College, Trichy (now National Institute of Technology) and a PGDBA (Financial & Portfolio Management) from LIBA, Chennai, has close to 27 years of experience, of which 20 years are in Equity Markets.

He joined Sundaram Mutual in December 2003 as Equity Research Head before moving in to the fund management team. His previous experience includes 6 years in Lucas TVS and 7 years in Anush Shares & Securities.

View:

Sundaram S.M.I.L.E Fundhas shown very good performance in the last 3 year and 5 year periods but there has been a sharp drop in the recent 1 year period which has landed the fund in the fourth quartile. The fund is highly risky in nature because of complete concentration in the mid and small cap space. Also the fund has a high allocation to cyclicals which adds to the risk profile. The performance needs to be watched closely.

 
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