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Fund analysis: Reliance Tax Saver: Sound track record
Tue, Dec 04, 2012
Source : Sanjay Kumar Singh, Citrus Interactive

Reliance Tax Saver, an equity-linked savings scheme or ELSS (which offers Section 80C tax benefit) was started in August 2005 and currently has Rs. 2,068.22 crore under management. It is benchmarked against the BSE 100 Index.

Fund performance

Scheme

YTD

1-yr

3-yr

5-yr

Since inception

Reliance Tax Saver (ELSS) Fund(G)

41.72

33.80

12.12

4.87

12.90

BSE-100

28.51

22.30

4.55

-0.38

--

All figures in %; as on November 30, 2012

Year-to-date (November 30, 2012) the fund is up 41.72 per cent, much ahead of its benchmark which is up 28.51 per cent. The fund has also beaten its benchmark over the one-, three-, and five-year horizons by handsome margins. Since its inception seven years ago it has given its investors a decent return of 12.90 per cent compounded annually.

Scheme

2011*

2010*

2009*

2008*

2007*

Reliance Tax Saver (ELSS) Fund(G)

-24.66

22.49

78.82

-52.82

42.40

BSE-100

-26.01

15.66

80.30

-55.49

59.74

Out/under performance**

1.35

6.83

-1.48

2.67

-17.34

*in %; ** in %age;

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 last five calendar years. It fell behind its benchmark in 2009 by a small margin of -1.48 percentage points, and in 2007 by a rather large margin of -17.34 percentage points.

In the last five years the fund has done a good job of providing downside protection to its investors in declining markets. Both in 2011 and 2008 the fund fell less than its benchmark.

Portfolio characteristics

Number of equity holdings. Currently the fund holds 46 stocks in its portfolio. This is marginally higher than the median of 44.5 for the equity-linked savings scheme (ELSS) category of funds.

Historically the fund has held fewer stocks: its average equity count over the last five years comes to 34.79.

Sector concentration.

Top 3

Top 5

Top 10

Reliance Tax Saver (ELSS) Fund(G)

28.11

41.11

64.34

Median

34.8

48.1

69.42

Figures in %

The fund's concentration in the top three, five, and 10 sectors in its portfolio is lower than the median for the ELSS category.

Company concentration.

Top 3

Top 5

Top 10

Reliance Tax Saver (ELSS) Fund(G)

18.18

26.79

45.01

Median-ELSS category

18.64

28.63

46.10

Figures in %

The fund's concentration in the top three, five, and 10 stocks in its portfolio is marginally lower than the median for the ELSS category.

Thus, currently the fund holds a more diversified portfolio. Even in the past its equity account has risen to the 40s and then fallen back again into the 30s. So whether the fund will be consistently more diversified (compared to its peer group) remains to be seen.

Turnover ratio. According to its latest portfolio disclosure, the fund had a turnover ratio of 48 per cent. This is much lower than the median of 78 per cent for the ELSS category.

Historically, the fund's turnover ratio (averaging 127.36 per cent over the last five years) has been much higher. But since November 2010 it has come down into double digits. Over the last one year it has averaged only 54.67 per cent.

In our view, the switch towards a lower turnover ratio is a positive development since it indicates that the fund manager spends less on transaction costs.

Expense ratio. The fund currently has an expense ratio of 1.91 per cent. This is much lower than the median of 2.43 per cent for the ELSS category. A lower expense ratio is a positive for investors.

Cash allocation. The fund’s cash allocation has tended to be on the higher side. Over the last five years it has averaged 8.74 per cent. Over the last one year, however, it has been kept exceptionally low, averaging only 45 basis points.

Risk.

Standard deviation

Beta

Reliance Tax Saver (ELSS) Fund(G)

0.9433

0.7321

Median-ELSS category

0.9569

0.8130


An examination of measures of risk such as standard deviation and beta indicates that the fund has a lower level of risk than the median for the ELSS category.

Risk-adjusted returns.

Treynor

Sharpe

Reliance Tax Saver (ELSS) Fund(G)

0.0515

0.0399

Median-ELSS category

0.0264

0.0201


An examination of parameters such as Treynor ratio and Sharpe ratio indicates that the fund has a much higher level of risk-adjusted returns than the median for the ELSS category.

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 -43.63 per cent. The fund declined -24.66 per cent, outperforming its benchmark by 1.35 percentage points (the BSE 100 Index fell -26.01 per cent that year).

In 2011 the fund had an average allocation of 54.70 per cent to large-cap stocks (minimum 50.14 per cent in March and maximum of 59.94 per cent in September). Its average allocation to mid-cap stocks was 20.79 per cent (minimum 19.08 per cent in May and maximum 24.74 per cent in November). Its allocation to small-cap stocks averaged 14.24 per cent that year (maximum 18.46 per cent in September and minimum 10.90 per cent in December). Based on its market-cap allocation, one can conclude that the fund belongs to the multi-cap category (defined as allocation to large-cap stocks between 40-60 per cent).

The fund also had an average allocation of 9.68 per cent to 'other equities' and 1.40 per cent to the 'others' category.

Despite 2011 being a bear market (when fund managers raise their allocation to cash), the fund had a meagre allocation of 0.78 per cent to cash.

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), BSE Auto (-20.30 per cent) and so on.

Sector

March 2011 (%)

December 2011 (%)

Raised/lowered
allocation (%age pts.)

Pharmaceuticals & Drugs

5.24

10.62

5.38

Electric Equipment

6.41

8.60

2.19

Automobiles-Trucks/LCV

8.68

10.44

1.76

Castings/Forgings

2.52

4.26

1.75

Finance - NBFC

2.60

3.98

1.38

Diesel Engines

5.01

5.93

0.91

Bank - Private

5.81

5.46

-0.34

Bank - Public

8.63

7.52

-1.11

IT - Software

7.34

5.68

-1.66

Refineries

7.40

4.70

-2.70


In 2011 the fund raised its allocation decisively to sectors like pharma, electric equipment, commercial vehicles, and so on (see table above). Among its top 10 sectors, it reduced its allocation to refineries, IT software, and public and private banks.

Sector

Fund (%)

BSE 100 (%)

Over/under weight
vis-à-vis index (%age pts.)

Automobiles-Trucks/Lcv

10.44

2.40

8.04

Electric Equipment

8.60

1.54

7.06

Pharmaceuticals & Drugs

10.62

4.86

5.76

Diesel Engines

5.93

0.29

5.64

Castings/Forgings

4.26

0.16

4.10

Finance – NBFC

3.98

0.74

3.24

Bank – Public

7.52

4.53

2.99

Refineries

4.70

7.17

-2.47

IT - Software

5.68

10.53

-4.85

Bank – Private

5.46

15.21

-9.75


By December 2011 the fund was overweight vis-a-vis its benchmark on commercial vehicles, electric equipment, pharma, diesel engines, and so on (see table above). It was underweight vis-a-vis its benchmark on private banks, IT software, and refineries.

Next, let us turn to the fund’s allocation to stocks.

Company

January 2011 (%)

December 2011 (%)

Raised/lowered
allocation (%age pts.)

Glaxosmithkline Pharmaceuticals

3.21

3.21

Bharat Forge Ltd.

1.97

4.26

2.30

Eicher Motors Ltd.

5.14

7.34

2.20

Maruti Suzuki India Ltd.

2.40

3.96

1.56

Sanofi India Ltd.

2.92

4.26

1.34

Madras Cements Ltd.

2.32

3.54

1.23

Siemens Ltd.

2.76

3.32

0.56

Wipro Ltd.

3.14

3.32

0.18

ICICI Bank Ltd.

3.66

3.30

-0.37

State Bank Of India

6.32

5.20

-1.12


In 2011, the fund raised its allocation to stocks like GSK Pharma, Bharat Forge, Eicher Motors, Maruti Suzuki, and so on (see table above). Among its top 10 holdings, it lowered its exposure to State Bank of India and ICICI Bank.

Company

Fund (%)

BSE 100 (%)

Over/under weight
vis-à-vis index (%age pts.)

Eicher Motors Ltd.

7.34

7.34

Sanofi India Ltd.

4.26

4.26

Bharat Forge Ltd.

4.26

0.16

4.10

Madras Cements Ltd.

3.54

3.54

Glaxosmithkline Pharmaceuticals Ltd.

3.21

3.21

Maruti Suzuki India Ltd.

3.96

0.96

3.00

Siemens Ltd.

3.32

0.32

3.00

State Bank Of India

5.20

2.51

2.69

Wipro Ltd.

3.32

1.03

2.29

ICICI Bank Ltd.

3.30

5.29

-1.99


By December 2011 the fund was overweight vis-a-vis its index on Bharat Forge, Maruti Suzuki, Siemens, State Bank of India and Wipro. The only stock (among its top 10 holdings) in which the fund was underweight compared to its benchmark was ICICI Bank. Many of the fund's top 10 holdings were from outside the benchmark index.

2012. Year-to-date (November 30, 2012) the Sensex is up 25.14 per cent, the BSE Mid-cap Index is up 34.41 per cent, and the BSE Small-cap Index is up 31.09 per cent.

Year-to-date (November 30, 2012) the fund is up 41.72 per cent, much ahead of its benchmark which is up 28.51 per cent.

This year the fund's allocation to large-cap stocks has averaged 53.89 per cent. Its allocation to mid-cap stocks has averaged 22.95 per cent, and its allocation to small-cap stocks has averaged 16.58 per cent. The fund's allocation to 'other equities' has averaged 8.47 per cent this year and to 'others', 0.65 per cent.

Year-to-date (November 30, 2012), the high-performing sector indexes have been BSE Bankex (52.42 per cent), Consumer Durables (51.98 per cent), FMCG (49.63 per cent), Realty (45.27 per cent), Capital Goods (37.34 per cent), Healthcare (35.36 per cent) and Auto (32.80 per cent). Thus, both rate-sensitive and defensive sectors are among the outperformers this year.

Sector

March 2012 (%)

Oct 2012 (%)

Raised/lowered
allocation (%age pts.)

Cement & Construction Materials

4.08

6.74

2.66

Electric Equipment

10.27

11.93

1.66

Automobiles - Passenger Cars

4.65

6.26

1.61

Retailing

3.13

3.86

0.73

Castings/Forgings

4.08

4.19

0.11

Bank – Private

4.38

4.02

-0.36

Bank – Public

6.34

5.97

-0.37

Diesel Engines

5.74

5.19

-0.55

Automobiles-Trucks/Lcv

9.91

8.69

-1.22

Pharmaceuticals & Drugs

9.04

7.49

-1.55



This year the fund has raised its allocation to cement and construction materials, electrical equipment, passenger cars, and so on. It has lowered its exposure to pharma, commercial vehicles, diesel engines, and public and private sector banks.

Sector

Fund (%)

BSE 100 (%)

Over/under weight
vis-à-vis index (%age pts.)

Electric Equipment

11.93

1.54

10.39

Automobiles-Trucks/Lcv

8.69

2.4

6.29

Automobiles - Passenger Cars

6.26

0.96

5.3

Diesel Engines

5.19

0.29

4.9

Cement & Construction Materials

6.74

2.19

4.55

Castings/Forgings

4.19

0.16

4.03

Retailing

3.86

3.86

Pharmaceuticals & Drugs

7.49

4.86

2.63

Bank - Public

5.97

4.53

1.44

Bank - Private

4.02

15.21

-11.19

Figures are for Oct. 2012

By the end of October 2012, the fund was overweight vis-a-vis its benchmark on electric equipment, commercial vehicles, passenger cars, diesel engines, and so on (see table above). Among its top 10 holdings, the only sector on which the fund was underweight (by quite a huge margin) vis-a-vis its benchmark was private banks.

Next, let us turn to the fund's stock allocation.

Company

January 2012 (%)

October 2012 (%)

Raised/lowered
allocation (%age pts.)

Maruti Suzuki India Ltd.

4.43

6.26

1.83

Divi’s Laboratories Ltd.

2.75

4.17

1.42

AlstomT&D India Ltd.

2.51

3.72

1.21

Madras Cements Ltd.

3.25

4.44

1.19

ICICI Bank Ltd.

3.34

4.02

0.68

Bajaj Finance Ltd.

3.10

3.74

0.64

State Bank Of India

5.46

5.97

0.51

Sanofi India Ltd.

3.51

3.32

-0.19

Bharat Forge Ltd.

4.32

3.42

-0.90

Eicher Motors Ltd.

7.13

5.95

-1.18


This year the fund has raised its allocation to stocks like Maruti Suzuki, Divi’s Laboratories, Alstom T&D, and so on (see table above). Among its top 10 holdings, the fund has lowered its exposure to Eicher Motors, Bharat Forge, and Sanofi India.

Company

Fund (%)

BSE 100 (%)

Over/under weight
vis-à-vis index (%age pts.)

Eicher Motors Ltd.

5.95

5.95

Maruti Suzuki India Ltd.

6.26

0.96

5.3

Madras Cements Ltd.

4.44

4.44

DiviS Laboratories Ltd.

4.17

0.35

3.82

Bajaj Finance Ltd.

3.74

3.74

AlstomT&D India Ltd.

3.72

3.72

State Bank Of India

5.97

2.51

3.46

Sanofi India Ltd.

3.32

3.32

Bharat Forge Ltd.

3.42

0.16

3.26

ICICI Bank Ltd.

4.02

5.29

-1.27


By the end of October 2012, the fund was overweight vis-a-vis its benchmark on Maruti Suzuki, Divi’s Laboratories, State Bank of India and so on (see table above). Among its top 10 holdings, the lone stock on which the fund was underweight vis-a-vis its benchmark was ICICI Bank.

Fund manager

This fund is managed by Ashwani Kumar and Viral Berawala. Kumar has been managing this fund since March 2006. Berawala joined it in August 2010. Thus, there has been consistency at the helm of this fund.

Some of the other funds managed by Kumar include Reliance Top 200, Reliance Vision, and Reliance Natural Resources. Of these Reliance Top 200 has a good track record.

In addition to this fund, Berawala also looks after Reliance Equity Opportunities (which has a good track record).

Conclusion

Reliance Tax Saver's rolling returns are fine, but as far as consistency goes, it has failed to beat its benchmark in two of the last five calendar years.

The fund tends to be reasonably diversified at all times, but has become more so recently. Its expense ratio is attractively low. The fund manager now churns the portfolio less than in the past, and also allocates less to cash. Both these are positive developments in our view. The fund has below-median level of risk and above-median level of risk-adjusted return.

All in all, those looking for an ELSS fund with a sound track record may invest in this fund.
 
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