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Reliance Small Cap Fund: Small is beautiful
Tue, Oct 20, 2015
Source : Khyati Shah, Citrus Interactive

Reliance Small Cap Fund is small cap equity diversified fund.  The primary investment objective of the scheme is to generate long term capital appreciation by investing predominantly in equity and equity related instruments of small cap companies and the secondary objective is to generate consistent returns by investing in debt and money market securities. The fund was launched in September 2010 and is benchmarked against the S&P BSE Small-Cap index. The fund has an AUM of Rs.1,722 crore as on September 30, 2015 which is gone up by 583 crore as compared to last year September 30, 2014 (1,139 crore).

 

Performance:

The fund’s performance across different time horizons is extremely good as seen in the table given below. Since its inception the fund has given outstanding CAGR returns of 19.83 per cent whereas S&P BSE Small-Cap Index has given CAGR return of only 1.66 per cent.  Its performance since inception has done better that its benchmark by over eighteen percentage points in CAGR terms. In the time horizon of YTD, 1, 2 and 3 years it has outperformed its category average and its benchmark. The outperformance margin vis-à-vis its benchmark is substantially high.

 

YTD

1 Year

2 Years

3 Years

Since Inception

Reliance Small Cap Fund

3.31

13.04

65.5

34.11

19.83

S&P BSE Small-Cap Index

-0.6

3.18

41.99

16.2

1.66

Category Average

1.79

10.87

34.07

20.33

NA

Rank

62/157

57/156

2/148

5/145

NA

Figures are in % as on Sept 30, 2015; Returns above 1-year in Compounded Annual Growth Rate

 

When we look at the calendar year returns it’s quite clear that this fund has substantially beaten its benchmark in each of the last calendar four years. It has marginally underperformed its category average in the year 2011 but the outperformance margin vis-à-vis its category average is substantially high in  2012, 2013 and 2014.

 

2011

2012

2013

2014

Reliance Small Cap Fund

-25.04

41.89

11.89

97.6

S&P BSE Small-Cap Index

-42.61

32.97

-11.23

69.24

Category Average

-24.07

34.15

5.26

54.2

Rank

87/139

28/143

9/147

5/150

All figures in % as on Sept 30, 2015

 

Portfolio Characteristics:

Risk: In terms of measures of risk such as Standard Deviation (measured over last three years), the fund has taken slightly higher risk compared to the category median whereas risk measure for Beta (measured over last three years) the fund has taken much lower risk compared to the category median.

 

Standard Deviation

Beta

Reliance Small Cap Fund

0.99

0.68

Category Median

0.95

0.88

Risk-adjusted Returns: In terms of measures of risk such as Treynor & Sharpe (measured over last three years), the fund has taken slightly higher risk compared to the category median.

 

Treynor

Sharpe

Reliance Small Cap Fund

0.15

0.1

Category Median

0.07

0.07

 

Sector concentration: The concentration of the fund in the top three, five and 10 sectors is much lower than the category median.

 

Top 3

Top 5

Top 10

Reliance Small Cap Fund

21.86

33.79

55.79

Category Median

37.35

50.17

71.33

 

Company concentration: The fund is diversified with concentration in top three, five and ten companies in its portfolio is much lower than the category median.

 

Top 3

Top 5

Top 10

Reliance Small Cap Fund

10.35

16.45

30

Category Median

19.3

27.86

44.67

 

Processes:

The investment approach adopts prudent risk management measures like margin of safety and diversification across sectors & stocks with a view to generate superior risk adjusted performance over a period of time. The fund attempts to generate superior risk adjusted returns by focusing on the smaller capitalization companies. Small cap stocks, for the purpose of the fund are defined as stocks whose market capitalization is in between the highest & lowest market capitalization of companies on S&P BSE Small Cap Index at the time of investment.

Number of equity holdings:  As of September 30, 2015, the fund holds 66 stocks which are higher than the category median of 46 stocks in the diversified equity segment.

The top 5 sectors in the portfolio had an allocation of 33.79% which is lower than the category average of 49.61%. The fund’s exposure to cyclical stocks currently is 69.86% followed by Defensives with 12.31% & Services with 12.04%. The Top five holding are Intellect Design Arena Ltd., Vindhya Telelinks Ltd., Navin Fluorine International Ltd., Orient Cement Ltd. and Cyient Ltd.

In the last three months stocks of Kirloskar Oil Engines Ltd. and Siti Cable Network Ltd. were sold from the portfolio whereas the stocks of Kotak Mahindra Bank Ltd., PVR Ltd., Tata Coffee Ltd., UFO Moviez India Ltd., HIL Ltd., Power Mech Projects Ltd. and Prabhat Dairy Ltd. were added.

The fund’s expense ratio of 1.75% is significantly lower than the category average of 2.36%. 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.

 

Fund Managers:

The fund is managed by the Head – Equity Investments of Reliance Mutual Fund, Sunil Singhania. He has qualifications of B.Com, CA (ICAI), CFA (CFA Institute, USA.) Mr.Singhania has additionally completed the Certification course for Derivatives conducted by the Bombay Stock Exchange securing an incredible 96% marks. He was the Promoter of The Association of NSE Members of India; a body of stock brokers. He also sits on the Standards & Practice Council of the CFA Institute, USA, the first and only member so far based in India to do so. He has over 17 Years of experience in Capital Markets. He has a long experience in fund management and has a sound track record.

View:

The fund focuses on identifying good growth businesses with reasonable size, quality management and rational valuation. The performance of the fund since its inception is outstanding. The small cap segment is a high-risk one. Small cap companies are potential large caps of tomorrow and offer twin advantage of high growth prospects & relatively lower valuation. The fund is meant for wealth creation over a long time horizon.

 
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