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SBI Small & Midcap Fund: Dark Horse
Mon, Feb 24, 2014
Source : Citrus Interactive

SBI Small & Mid cap fund is a small/mid cap oriented fund with assets under management of Rs 12.76 crores (as on January 2014). The fund came into existence in September 2009 as Daiwa Industry Leaders Fund, which later on was acquired by SBI Mutual Fund. Post the acquisition, the fundamental attributes, investment strategy and name of the scheme was changed in November 2013.

Performance

Please note that the performance is not strictly comparable as there was a change in fundamental attribute, strategy, benchmark, fund manager and name of the scheme in November 2013

The fund has outperformed its benchmark as well as the equity diversified category average in the last one and three-year periods. Since its inception the fund has delivered a 7.19 per cent compounded annual growth rate which is superior to its benchmark performance in the same period.


YEAR-TO-DATE

1 YEAR

3 YEARS

SINCE INCEPTION

SBI Small & Midcap Fund

-0.31

7.69

7.07

7.19

S&P BSE Small Cap Index

-4.14

-3.99

-8.69

-2.76

Category Average

-3.47

3.63

5.79

 

Rank

7/155

27/152

48/144

 

Figures in % as on January 31 2014; Returns above 1-year in CAGR (Compounded Annual Growth Rate) terms.

The fund has beaten its benchmark in 3 of the last four calendar years. However the performance was below the category average in 2010, 2011 and 2012. However the performance in CY 2013 was much better.

 

 

2010

2011

2012

2013

SBI Small & Midcap Fund-Reg(G)

18.97

-24.31

31.91

7.85

S&P BSE Small Cap Index

15.71

-42.61

32.97

-11.23

Category Average

19.24

-24.28

33.99

4.61

Rank

64/133

83/139

75/143

37/146

  Figures in %

Risk. In terms of measures of risk such as standard deviation and beta (measured over last three years), the fund has taken lower risk compared to the category.

 

Standard Deviation

Beta

SBI Small & Midcap Fund-Reg(G)

0.8858

0.7955

Category Median

0.9319

0.8144

 

Risk-adjusted Returns. In terms of measures of risk such as Treynor ratio and Sharpe ratio (measured over last three years) the fund has delivered higher return for risks undertaken in the portfolio vis-à-vis its category median.

 

Treynor Ratio

Sharpe Ratio

SBI Small & Midcap Fund-Reg(G)

0.0302

0.0341

Category Median

0.0074

0.0129

                               

Processes

The primary investment strategy of the fund is to predominantly invest in the stocks of small & midcap companies and a small portion can be invested in large cap stocks. The fund has a stated objective of investing minimum 90% of the corpus in equities with an overall cap of 30 stocks in the portfolio.

 

Allocation between the various market capitalization segments in equity instruments will be on the basis of the entire portfolio and will be subject to the allocations as mentioned below:

Market Capitalisation

Minimum Allocatio

Maximum Allocation

Definition

Small Cap

50%

70%

Beyond 401st market capitalised stock

Mid Cap

30%

40%

101st to 400th Market Capitalised stock

Large Cap

0%

20%

Top 100 market capitalized stock

 

The fund has kept a capacity constraint of INR 750 crores on its overall corpus. Depending on the evolution of the equity markets and liquidity scenario, the trustee reserve the right to change the capacity.

The fund’s expense ratio is 2.70 per cent which is higher than the category median of 2.56 per cent. Like most equity funds the fund has an exit load of 1 per cent on or before one year from the date of investment. Minimum investment in the fund is Rs 5,000.

The general process of investment is defined as per SID, “Fund managers invest based on the offer document limits, regulatory limits and internal guidelines as set out in the Investment policy manual. Fund managers take input from the research team. Investment committee is playing the role of governance and supervisory body for all investment related activities. The committee will hold a meeting on a periodic basis for a detailed review of portfolio holdings, scheme performance and investment strategy and also to ensure adherence to all internal processes.”

Based on the way the fund's committee's various activities has been written about, the impression is clear that the fund manager is given autonomy in constructing the portfolio as long as they adhere to the internal guidelines set for them.

Portfolio

The fund portfolio is highly concentrated with 23 stocks which is much lower than the median average of 40. The fund concentration has increased over the period and is likely to be so post acquisition of this fund by SBI Mutual Fund. The fund concentration is very high with top 5 & 10 stocks accounting for 35% (category median 28.9) & 58% (category median 47.32) of the fund respectively.

The fund currently has an exposure of 20% in large cap, 48% in mid cap and 20% in small cap.

Post acquisition of the fund by SBI Mutual Fund in November 2013, the portfolio of the fund has been completely reconstituted. The top five companies held by the fund form 35 per cent of the portfolio comprising Hawkins Cookers, IFB Agro Industries, Great Eastern Shipping, Shriram City Union Finance and Goodyear India. The fund is expected to be very concentrated in terms of its holding as the investment strategy of the fund puts up a cap of 30 stocks in the portfolio.

The fund has aggressive concentrated portfolio having large exposure in some of the mid and small cap stocks. This makes the fund a high risk and high return profile. The fund’s exposure to cyclical stocks currently is 55 per cent, followed by defensives of 32 per cent and Services around 8 per cent.

Fund Manager

The fund is being managed by Mr. R. Srinivasan (43 years) since November 2013. He is also the Head – Equities in SBI Mutual Fund since June 2011 and oversees equity assets worth over Rs. 16,000 crores. He joined SBI MF as a Senior Fund Manager in May 2009 and has an experience of over 19 years in capital markets. He is also the Fund Manager for SBI Magnum Equity Fund, SBI Magnum Global Fund, SBI Magnum Balanced Fund (jointly with Dinesh Ahuja), SBI Emerging Businesses Fund & SBI Contra Fund.

He has a sound track record in fund management over the last few years and also has been rated as the best equity fund manager for the year in Business Today’s ranking in 2012. He has a good track record as a stock picker especially in the small & mid cap fund and the same has been demonstrated in the performance of SBI Emerging Business Fund and SBI Magnum Global Fund. However his aggression in terms of stock picking and concentration makes his fund suitable for investors having a high risk and high return appetite. One may find short-term underperformance during some market cycles but over longer time periods his funds tend to outperform.

View

SBI Small and Mid cap Fund can be a good choice for investors having high risk high return appetite for the following reasons:

1)            It is a small & mid cap fund

2)            It is positioned as an aggressive and concentrated fund with maximum exposure of 30 stocks.

3)            Past performance and record of the fund manager.


 
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