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Fund Analysis: Sundaram Select Midcap Fund: Meritorious Performer
Fri, Dec 28, 2012
Source : Jeni Shukla, Citrus Interactive

Sundaram Select Midcap Fund is a mid- and small-cap growth fund. Currently it has assets under management worth Rs. 2,150.77 crores. The fund was launched on July 19, 2002 and is benchmarked against the BSE Midcap Index.

Fund Performance

 

YTD

1-YEAR

3-YEAR

5-YEAR

SINCE INCEPTION

Sundaram Select Midcap

35.49

25.26

9.86

5.21

31.29

BSE Midcap

34.41

22.58

2.46

-4.20

23.45

All figures are in %, as on November 30, 2012; Returns of one-year and above in CAGR

The fund has beaten its benchmark year-to-date as well as over the one-, three- and five-year periods. It is also much ahead of its benchmark in terms of its return since inception.

 

2011

2010

2009

2008

2007

Sundaram Select Midcap

-23.67

20.76

109.26

-58.94

63.14

BSE Midcap

-34.19

16.15

102.40

-67.44

68.63

Out/under Performance

10.52

4.61

6.86

8.5

-5.49

All figures are in %

If one looks at calendar-year returns, the fund has outperformed its benchmark in four of the last five calendar years. It has also provided good downside protection to its investors in the two years when the markets were falling. However, it underperformed its benchmark in 2007.

Investment Philosophy and Approach

According to the Scheme Information Document (SID), "The objective of the scheme is to achieve capital appreciation by investing in diversified stocks that are generally termed as midcaps." At least 75 per cent of the portfolio will be invested in equities.

Portfolio Characteristics

Number of equity holdings. The fund’s current portfolio comprises 56 stocks vis-a-vis the median for the equity diversified category, which currently stands at 41. The fund’s equity holdings averaged 98 in 2007, 66 in 2008, 55 in 2009 and 50 in 2010 and 2011. Year-to-date it has averaged 59.

Sector Concentration. The fund’s concentration in the top three, five and 10 sectors is lower than the category median.

 

Top 3

Top 5

Top 10

Sundaram Select Midcap

31.59

47.37

77.17

Category Median-Diversified Equity

43.11

58.52

80.66

 

Company Concentration. The fund’s concentration in the top three, five and 10 companies in its portfolio is lower than the category median.

 

Top 3

Top 5

Top 10

Sundaram Select Midcap

15.81

23.42

39.10

Category Median-Diversified Equity

18.79

28.35

45.60

 

Thus, based on these three criteria—number of equity holdings, sector concentration and company concentration—one can conclude that the fund maintains a well-diversified portfolio.

Turnover Ratio. According to the fund's latest disclosures, its turnover ratio is 45 per cent against the category median of 62 per cent (category median is calculated using data for those funds which made disclosures in November 2012). The latest period for which all funds in the equity diversified category disclosed turnover ratios is end of March 2012. At that time the fund’s turnover ratio was 45 per cent against the category median of 89 per cent. This suggests that the fund's turnover ratio has been on a downward trend from 134 per cent in 2009, 105.3 per cent in 2010, 78.4 per cent in 2011 and 46 per cent in 2012 (year-to-date).

Expense Ratio. The fund’s expense ratio is 1.89 per cent which is lower than the category median of 2.42 per cent.

Risk. In terms of measures of risk such as standard deviation and beta (measured over last three years ending 21st December, 2012), the fund has a lower level of risk compared to the category median.

 

Standard Deviation

Beta

Sundaram Select Midcap

0.9385

0.6671

Category Median

0.9520

0.7945

 

Risk-adjusted Returns. In terms of measures of risk-adjusted return such as Treynor ratio and Sharpe ratio (measured over last three years ending 21st December, 2012), the fund has higher risk-adjusted returns compared to the category median.

 

Treynor

Sharpe

Sundaram Select Midcap

0.0412

0.0391

Category Median

0.0229

0.0314

 

Portfolio Strategy

2011. In 2011 the markets declined: the Sensex fell -24.83 per cent, the CNX Mid-cap Index fell -30.99 per cent, and the BSE Small-cap Index fell -43.63 per cent.

The fund had an average allocation of 41.81 per cent to large caps, 45.70 per cent to midcaps and 11.66 per cent to cash.

Sector

January 2011 (%)

December 2011 (%)

Raised/lowered allocation (%age points)

Industrial Products

2.66

5.05

2.39

Gas

7.82

9.99

2.17

Finance

7.31

8.87

1.56

Retailing

2.99

4.54

1.55

Fertilisers

3.68

4.79

1.11

Auto Ancillaries

5.02

5.23

0.22

Textile Products

5.47

5.60

0.13

Consumer Non Durables

9.55

7.53

-2.03

Pharmaceuticals

7.72

5.45

-2.28

Software

7.03

4.36

-2.67

 

In 2011, the fund raised its allocation to industrial products, gas, finance, retailing, fertilisers, auto ancillaries and textile products. It lowered its allocation to software, pharmaceuticals and consumer non-durables.

Fund vs. Index – December 2011

Sector

Fund (%)

BSE Midcap (%)

Over/under weight (%age points)

Gas

9.99

1.39

8.60

Textile Products

5.60

1.19

4.41

Fertilisers

4.79

1.38

3.41

Retailing

4.54

1.62

2.92

Auto Ancillaries

5.23

3.92

1.31

Industrial Products

5.05

4.83

0.22

Software

4.36

5.04

-0.68

Finance

8.87

10.15

-1.28

Consumer Non Durables

7.53

9.06

-1.53

Pharmaceuticals

5.45

7.85

-2.40

 

By the end of 2011, the fund was overweight vis-a-vis its benchmark on sectors like gas, textile products, fertilisers, retailing, auto ancillaries and industrial products. It was underweight vis-a-vis its benchmark on sectors like pharmaceuticals, consumer non-durables, finance and software.

Company

Holding January 2011 (%)

Holding December 2011 (%)

Raised/lowered allocation (%age points)

Indraprastha Gas Ltd.

4.21

5.60

1.39

FAG Bearings India Ltd.

2.66

4.03

1.36

Trent Ltd.

2.99

4.25

1.26

Bosch Ltd

2.50

3.65

1.15

Coromandel International Ltd.

3.28

3.75

0.47

Gujarat Alkalies & Chemicals Ltd.

2.44

2.84

0.40

Ipca Laboratories Ltd.

5.22

5.45

0.23

Petronet LNG Ltd.

3.61

3.76

0.15

EID-Parry (India) Ltd.

3.01

2.98

-0.03

SRF Ltd.

3.35

2.83

-0.52

 

Among its top 10 holdings the fund raised its exposure to stocks like Indraprastha Gas, FAG Bearings, Trent, Bosch, Coromandel International, Gujarat Alkalies & Chemicals, Ipca Labs and Petronet LNG. It lowered its exposure to SRF and EID-Parry.

Company Name

Fund (%)

BSE Midcap (%)

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

Indraprastha Gas Ltd.

5.60

0.42

5.18

Ipca Laboratories Ltd.

5.45

0.84

4.61

Petronet LNG Ltd.

3.76

 

3.76

FAG Bearings India Ltd.

4.03

0.33

3.70

Bosch Ltd

3.65

 

3.65

Trent Ltd.

4.25

0.66

3.59

Coromandel International Ltd.

3.75

0.60

3.15

Gujarat Alkalies & Chemicals Ltd.

2.84

 

2.84

SRF Ltd.

2.83

 

2.83

EID-Parry (India) Ltd.

2.98

0.47

2.51

Figures are for December 2011

By the end of 2011, the fund was overweight vis-a-vis its index on Indraprastha Gas, Ipca Laboratories, FAG Bearings India, Trent, and so on (see table above). Four of its top 10 holdings were from outside the benchmark. Among its top 10 holdings, the fund was not underweight on any stock vis-a-vis its index.

2012. Year-to-date (as on November 30, 2012) BSE Sensex is up 25.14 per cent, S&P CNX Nifty is up 27.15 per cent and BSE Midcap is up 34.41 per cent. The fund has generated a return of 35.49 per cent.

So far this year the fund has had an average allocation of 42.40 per cent to large-cap stocks, 52.58 per cent to mid-cap stocks and 4.09 per cent to cash.

Sector

January 2012 (%)

November 2012 (%)

Raised/lowered allocation (%age points)

Auto Ancillaries

5.06

10.75

5.69

Cement

0.58

5.30

4.72

Banks

3.63

8.18

4.55

Software

4.67

7.60

2.93

Finance

9.84

11.46

1.62

Pharmaceuticals

5.34

6.82

1.48

Industrial Products

5.25

6.60

1.34

Consumer Non Durables

9.22

9.38

0.17

Textile Products

5.73

4.86

-0.87

Gas

9.14

6.21

-2.93

 

This year the fund has raised allocation to sectors such as auto ancillaries, cement, banks, software, finance, pharmaceuticals, industrial products and consumer non-durables. Two sectors to which it has lowered its allocation are gas and textile products.

Fund vs. Index – November 2012

Sector

Fund (%)

BSE Midcap (%)

Over/under weight (%age points)

Auto Ancillaries

10.75

3.92

6.83

Gas

6.21

1.39

4.82

Textile Products

4.86

1.19

3.67

Cement

5.30

2.06

3.24

Software

7.60

5.04

2.56

Industrial Products

6.60

4.83

1.77

Finance

11.46

10.15

1.31

Consumer Non Durables

9.38

9.06

0.32

Pharmaceuticals

6.82

7.85

-1.03

Banks

8.18

12.54

-4.36

 

By November 2012, the fund was overweight vis-a-vis its benchmark on sectors like auto ancillaries, gas, textile products, cement, software, industrial products, finance and consumer non-durables. It was underweight vis-a-vis its benchmark on sectors like banks and pharmaceuticals.

Company

Holding January 2012 (%)

Holding November 2012 (%)

Raised/lowered allocation (%age points)

Karur Vysya Bank Ltd.

 

3.10

3.10

Madras Cements Ltd.

 

2.97

2.97

Amara Raja Batteries Ltd.

1.51

3.91

2.40

Bajaj Finserv Ltd

1.51

3.18

1.67

Bajaj Finance Ltd.

1.99

3.28

1.29

Ipca Laboratories Ltd.

5.34

6.62

1.28

FAG Bearings India Ltd.

4.14

5.08

0.94

Bosch Ltd

3.53

4.11

0.57

Coromandel International Ltd.

3.25

3.15

-0.10

Indraprastha Gas Ltd.

4.92

3.69

-1.23

 

Among its top 10 stock holdings, the fund increased its exposure to Karur Vysya Bank, Madras Cements, Amara Raja Batteries, Bajaj Finserv, Bajaj Finance, Ipca Laboratories, FAG Bearings and Bosch. It lowered its exposure to Indraprastha Gas and Coromandel International.

 

Company Name

Fund (%)

BSE Midcap (%)

Over/underweight vis-à-vis benchmark (%age pts.)

Ipca Laboratories Ltd.

6.62

0.84

5.78

FAG Bearings India Ltd.

5.08

0.33

4.75

Bosch Ltd

4.11

 

4.11

Amara Raja Batteries Ltd.

3.91

0.49

3.42

Indraprastha Gas Ltd.

3.69

0.42

3.27

Bajaj Finserv Ltd

3.18

 

3.18

Karur Vysya Bank Ltd.

3.10

 

3.10

Bajaj Finance Ltd.

3.28

0.51

2.77

Coromandel International Ltd.

3.15

0.60

2.55

Madras Cements Ltd.

2.97

0.72

2.25

Figures are for November 2012

By the end of November 2012, the fund was overweight vis-a-vis its index on Ipca Laboratories, FAG Bearings India, Amara Raja Batteries, Indraprastha Gas and so on (see table above). Among its top 10 holdings, the fund was not underweight vis-a-vis its benchmark on any stock.

Fund Manager

The fund recently saw a change at the helm. It is now managed by S. Krishnakumar who took charge on November 1, 2012. Krishnakumar has been with Sundaram AMC since December 2003. The other funds managed by him include Sundaram S.M.I.L.E.Fund, Sundaram Energy Opportunitie and Sundaram Equity Multiplier. Satish Ramanathan (then Director and Head of Equities at Sundaram AMC) managed the fund from October 2007 to October 2012.

Conclusion

Apart from an impressive track record in terms of performance, the fund also scores favourably on other parameters such as risk-adjusted returns, expense ratio, turnover ratio, concentration risk and so on. Typically, when the fund manager changes one should take a cautious view of the fund. However, going by S. Krishnakumar’s track record, we expect this fund's outperformance to continue.  

 

 
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