SBI Magnum Global is a mid-cap growth
fund which was started in September 1994. The fund currently has Rs 959.23
crore under management. It is benchmarked against the CNX Midcap Index.
Investment
philosophy and approach
Fund manager R Srinivasan describes SBI Magnum
Global as a mid-cap fund with a quality bias. The fund follows a bottom-up approach
to stock selection. It invests at least 70 per cent of its portfolio in mid-cap
stocks.
Adhering to its quality philosophy, the fund
focuses on businesses that have a strong competitive advantage, have
consistently generated or are expected to generate high returns on capital and
have growth potential.
According to the fund manager, stock selection
is guided by management quality (integrity and capability) and valuations
(relative and absolute).
About 30 per cent of the portfolio may be
allocated to large-cap stocks to manage liquidity.
Fund performance
Scheme
|
YTD
|
3-yr
|
5-yr
|
Since inception
|
SBI Magnum Global Fund
94(G)
|
35.98
|
11.26
|
0.17
|
18.21
|
CNX Midcap
|
39.16
|
4.59
|
-1.56
|
--
|
All figures in %; as
on December 31, 2012
Year-to-date (December 31, 2012) the fund lags
behind its index: while it is up 35.98 per cent, its benchmark is up 39.16 per
cent. On the lag in YTD performance, the fund manager says: "The 'quality'
bias in the portfolio, we have seen, leads to under-performance against the
benchmark whenever market movements are sharp and short. Part of the YTD
performance can be attributed to this. The fund, for instance, substantially
under-performed the benchmark at the beginning of 2012 (January-February) also
when the market saw a sharp upward move led by 'inferior' (stocks with
questionable balance sheets) stocks."
He goes on to defend the fund's philosophy of
investing in quality stocks thus: "Our back-testing of the quality
philosophy indicates decent out-performance over two-year periods, so we hope
that next year will be much better."
However, the fund is ahead of its benchmark
over the three- and five-year horizons. According to the fund manager, the same reason
that led to the under-performance in 2012 also explains the longer-term
outperformance. He says: "Quality stocks or companies with good balance
sheets have out-performed the market meaningfully in India and the rest of the
world in the period following the Lehman crisis. Our bias towards this
philosophy in all likelihood helped. In addition, better stock picking would
have contributed to some excess return too."
Since inception the fund has
given its investors a handsome return of 18.21 per cent compounded annually.
Scheme
|
2011
|
2010
|
2009
|
2008
|
2007
|
SBI Magnum Global Fund 94(G)*
|
-14.58
|
18.10
|
114.04
|
-67.01
|
52.37
|
CNX Midcap*
|
-31.47
|
19.16
|
94.85
|
-60.23
|
76.93
|
Out/under performance**
|
16.90
|
-1.07
|
19.18
|
-6.78
|
-24.56
|
*in %; **in %age pts.
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 only two of the previous five calendar years: 2011 and
2009. However, we
should only be concerned about the performance since 2009, when the current
fund manager took over. In those three calendar years, performance has been
stellar. The fund beat its benchmark by wide margins of 19.18 percentage points
and 16.90 percentage points respectively in 2009 and 2011. The underperformance
in 2010 was marginal at -1.07 percentage points. Says the fund manager:
"The out-performance, as mentioned earlier, can be attributed to superior
stock selection and the 'quality' bias in the portfolio. The extent of
out-performance is a function of a bottom-up approach with flexible sector
active weight limits and an element of benchmark agnosticism. This, clearly,
works both ways!"
Does the fund provide sound
downside protection to investors in a declining market? Under Srinivasan’s
watch, the fund beat its
benchmark by a wide margin in the declining market of 2011. According to
the fund manager, "The fund is focused on downward protection as a
conscious strategy which gels well with the bias on quality.”
Portfolio
characteristics
Number of equity
holdings. According to its latest portfolio disclosure, the fund
currently holds 34 stocks in its portfolio. This is lower than the median for
the diversified-equity category, which currently stands at 42.
Over the last five years, the
number of stocks in this fund’s portfolio has averaged 46.17. Thus, in the past
the fund held a more diversified portfolio than it does currently. Since April
2011 the equity count in the fund's portfolio has declined to the 30s (barring
one month, June 2011, when it was 41). Thus, in recent times the fund has moved
towards a more compact portfolio.
Says the fund manager: "I
believe that 30-odd stocks provide adequate diversification for an equity
portfolio and any further increase in stock count may not necessarily
help."
Sector concentration.
|
Top 3
|
Top 5
|
Top 10
|
SBI Magnum Global Fund 94(D)
|
23.16
|
32.87
|
49.64
|
Median-diversified equity
|
34.37
|
47.53
|
68.43
|
All figures in %
The fund's concentration in the top three, five,
and 10 sectors in its portfolio is lower than the median for the diversified-equity
category, and that too by a considerable margin.
Company concentration.
|
Top 3
|
Top 5
|
Top 10
|
SBI Magnum Global Fund 94(D)
|
12.35
|
19.32
|
35.76
|
Median-diversified equity
|
18.50
|
28.14
|
44.84
|
All figures in %
The fund's concentration in the
top three, five and 10 stocks in its portfolio is similarly lower than the
median for the diversified-equity category, again by a considerable margin.
According to the fund manager,
"As an additional diversification tool, we have restricted active stock
exposure to +/-5 per cent, which reduces the portfolio concentration.
Currently, our top 15 stocks have a weight between 3 per cent and 4.4 per cent,
the latter being the maximum."
Thus, while the fund has moved
towards a slightly more compact portfolio (with the number of equity holdings shrinking
from the 40s to the 30s), it remains well diversified in terms of sector and
stock concentration.
Turnover ratio.
According to its latest portfolio disclosure, the fund had a turnover ratio of
62 per cent. This is lower than the median of 70 per cent for the diversified-equity
category.
Historically, the fund's turnover
ratio has been higher. We have data available from April 2008 to November 2012.
Over this span of four years and seven months the fund's turnover ratio has
averaged about 96 per cent.
There has been a marked decline
in the fund's turnover ratio since February 2011.
In our view, the trend towards
lower turnover ratio is a positive since it indicates that the fund manager has
conviction in his stock selection and hence does not feel compelled to churn
the portfolio heavily. Another positive arising from this is lower transaction
costs.
Says the fund manager: "On account of its philosophy, this
fund follows a buy-and-hold approach and portfolio churn is low."
Expense ratio. The fund currently has an expense ratio of 2.26 per
cent. This is marginally lower than the median of 2.35 per cent for the
diversified-equity category.
Cash allocation. Over the last five years the fund has had an
average cash allocation of 7.07 per cent. This is on the higher side (a cash
allocation of 5 per cent or less being considered optimal). Over the last one
year, however, cash allocation has averaged 6.23 per cent.
Risk.
|
SD
|
Beta (Slope)
|
SBI Magnum Global Fund 94(D)
|
0.8110
|
0.5306
|
Median-diversified equity
|
0.9673
|
0.7973
|
An examination of measures such
as standard deviation and the beta (calculated over the last three years ending
November 30, 2012) indicates that the fund has a lower level of risk than the
median for the diversified-equity category.
Risk-adjusted returns.
|
Treynor
|
Sharpe
|
SBI Magnum Global Fund 94(D)
|
0.0621
|
0.0407
|
Median-diversified equity
|
0.0261
|
0.0210
|
An examination of measures such
as Treynor ratio and Sharpe ratio (also calculated over trailing three-year
period) indicates that the fund has a much higher level of risk-adjusted return
than the median for the diversified-equity 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 -14.58 per cent, beating its benchmark by a handsome margin of
16.90 percentage points.
In 2011 the fund had an average allocation of
40.42 per cent to large-cap stocks. As the markets declined, the
fund sought refuge in large-caps stocks, raising its exposure to these stocks
from a minimum of 33.89 per cent in February to a maximum of 46.06 per cent in
November.
The fund had an average exposure
of 34.89 per cent to mid-cap stocks. From a peak level of 41 per cent in
August, exposure to these stocks was reduced to 27.87 per cent in December.
The fund had an average exposure
of 16.77 per cent to small cap stocks during the year. The fund began the year
with an exposure of 29.07 per cent to small caps in January. This fell to 7.16
per cent in July and was raised again to 24.08 per cent in December.
The fund also had an average exposure of 7.93
per cent to the "others" category.
In the declining market of 2011, as
is customary, the fund's allocation to cash averaged a high 7.93 per cent,
ranging from a minimum of 4.51 per cent in January to a maximum of 16.59 per
cent in May.
We shall not examine the fund’s sector
allocation strategy since it primarily follows a bottom-up approach to stock
selection.
Company Name
|
January 2011 (%)
|
December 2011 (%)
|
Raised/lowered
allocation (%age pts.)
|
Muthoot Finance Ltd
|
|
4.39
|
4.39
|
Ultratech Cement Ltd.
|
|
4.25
|
4.25
|
DiviS Laboratories Ltd.
|
|
3.39
|
3.39
|
Greaves Cotton Ltd.
|
|
3.09
|
3.09
|
Page Industries Ltd.
|
3.22
|
4.37
|
1.15
|
CRISIL Ltd.
|
2.32
|
3.25
|
0.93
|
MRF Ltd.
|
3.77
|
4.54
|
0.77
|
Blue Dart Express Ltd.
|
3.45
|
3.81
|
0.36
|
Redington (India) Ltd.
|
5.3
|
4.25
|
-1.05
|
Bosch Ltd
|
4.4
|
3.12
|
-1.28
|
In 2011, the fund raised its
allocation decisively to Muthoot Finance, Ultratech Cement, Divi's
Laboratories, and so on (see table above).
It raised its allocation marginally to companies like Page Industries, Crisil,
MRF and Blue Dart.
Among its top 10 holdings, the two
stocks to which the fund lowered its exposure during the year were Bosch and
Redington.
Company Name
|
Fund (%)
|
CNX Midcap (%)
|
Over/under weight
vis-à-vis index (%age pts.)
|
Muthoot Finance Ltd
|
4.39
|
|
4.39
|
Page Industries Ltd.
|
4.37
|
|
4.37
|
Ultratech Cement Ltd.
|
4.25
|
|
4.25
|
Redington (India) Ltd.
|
4.25
|
|
4.25
|
Blue Dart Express Ltd.
|
3.81
|
|
3.81
|
MRF Ltd.
|
4.54
|
0.96
|
3.58
|
CRISIL Ltd.
|
3.25
|
|
3.25
|
Bosch Ltd
|
3.12
|
|
3.12
|
Greaves Cotton Ltd.
|
3.09
|
|
3.09
|
Divi’s Laboratories Ltd.
|
3.39
|
2.19
|
1.20
|
Figures are for December 2011
By December 2011, the fund was
overweight vis-a-vis its benchmark on MRF and Divi's Laboratories. The fund's
benchmark agnosticism is evident from the fact that eight of its top 10 stock
holdings were from outside the benchmark index. According to the fund manager,
"We believe benchmarking
is not a great strategy to follow in a mid-cap fund."
On the performance of 2011, the fund manager
says: "The performance in 2011 may be attributed chiefly to stocks
like Page Industries, Blue Dart, Crisil, Bosch and Redington."
2012. Year-to-date
(December 31, 2012) the Sensex is up 25.70 per cent, the BSE Mid-cap Index is
up 38.52 per cent and the BSE Small-cap Index is up 32.97 per cent.
Year-to-date (December 31, 2012) the fund is up 35.98
per cent, lagging behind its benchmark which is up 39.16 per cent.
In 2012 the fund's allocation to
large-cap stocks averaged 45.10 per cent (starting from 43.84 per cent in
January, declining to 40.65 per cent in July, and rising again to 46.96 per
cent by November).
Last year the fund’s allocation
to mid-cap stocks averaged 35.37 per cent (ranging from a minimum of 31.05 per
cent in January, going up to 41.85 per cent in October, and then declining
again to 36.5 per cent in November).
In 2012 the fund’s allocation to
small-cap stocks averaged 13.28 per cent
(ranging from a minimum of 6.41 per cent in
March and rising to a high of 18.05 per cent in August, before declining again
to 9.84 per cent in November).
The fund has also had an allocation of 6.25 per
cent to the "others" category during the year.
Company
|
January 2012 (%)
|
November 2012 (%)
|
Raised/lowered
allocation (%age pts.)
|
Shriram City Union Finance Ltd.
|
|
3.40
|
3.40
|
Karur Vysya Bank Ltd.
|
|
3.24
|
3.24
|
DB Corp Ltd.
|
|
3.21
|
3.21
|
Amara Raja Batteries Ltd.
|
2.16
|
4.05
|
1.89
|
Supreme Industries Ltd.
|
2.34
|
3.28
|
0.94
|
Cadila Healthcare Ltd.
|
3.01
|
3.84
|
0.83
|
Bajaj Holdings & Investment Ltd
|
2.75
|
3.31
|
0.56
|
Sadbhav Engineering Ltd.
|
3.37
|
3.48
|
0.11
|
Muthoot Finance Ltd
|
4.61
|
4.46
|
-0.15
|
Page Industries Ltd.
|
3.86
|
3.49
|
-0.37
|
In 2012, the fund raised its
allocation to Shriram City Union Finance, Karur Vysya Bank, DB Corp, Supreme
Industries, and so on (see table above).
Among its top 10 holdings, it lowered
its allocation to Page Industries and Muthoot Finance.
Company Name
|
Fund (%)
|
CNX Midcap (%)
|
Over/under weight
vis-à-vis index (%age pts.)
|
Muthoot Finance Ltd
|
4.46
|
|
4.46
|
Amara Raja Batteries Ltd.
|
4.05
|
|
4.05
|
Page Industries Ltd.
|
3.49
|
|
3.49
|
Sadbhav Engineering Ltd.
|
3.48
|
|
3.48
|
Shriram City Union Finance Ltd.
|
3.4
|
|
3.4
|
Bajaj Holdings & Investment Ltd
|
3.31
|
|
3.31
|
Supreme Industries Ltd.
|
3.28
|
|
3.28
|
DB Corp Ltd.
|
3.21
|
|
3.21
|
Cadila Healthcare Ltd.
|
3.84
|
1.42
|
2.42
|
Karur Vysya Bank Ltd.
|
3.24
|
1.65
|
1.59
|
Figures are for November 2012
By the end of November 2012, the
fund was overweight vis-a-vis its benchmark on Karur Vysya Bank and Cadila Healthcare.
Eight of its top 10 stock holdings were from outside the benchmark index.
According to the fund manager, "Amara
Raja, Eicher Motors and MRF are the top three positive attributors so far this
year. In addition to the negative attribution on the average cash level of
about 6 per cent, stocks that have done badly for us include Redington, Greaves
Cotton, Cox and Kings, Indraprastha Gas and FDC.”
Fund manager
R. Srinivasan has been managing this
fund since May 2009. Altogether he has 16 years of work experience. Before joining
SBI Mutual Fund, he worked for Future Capital Holdings, the asset management
and financial services arm of Future Group. Prior to that assignment, he had
also worked with PNB AMC and with Oppenheimer.
Srinivasan also manages SBI
Magnum Emerging Businesses Fund (very good track record), SBI Magnum Equity
Fund (good track record), SBI Magnum Balanced Fund (average track record) and
SBI Magnum Contra Fund (below-average track record).
Conclusion
Since the change of fund manager
in 2009, the performance of this fund has picked up markedly.
As for who should invest in this
fund and why, the fund manager says: “Anecdotally, I am tempted to think that a good part of the investing
community is more concerned about downward protection in a falling market and
they are probably okay if there is marginal under-performance in a very
positive market, provided that there is out-performance over time. This fund is
good for these kinds of investors. It is also a nice mid-option between a
large-cap and a mid-cap strategy given that the fund provides higher beta by
being mid-cap but at the same time cuts risk due to its focus on quality.”
Based on the current fund manager’s track
record and the fund’s quality orientation, it deserves your investment.
|