Contrasting styles

Suresh Krishnamurthy

THE sharp decline in mutual fund NAVs has focussed attention on investment strategies.

While technology sector-focussed funds lost considerable value, diversified funds were more successful in contending with the fall in stock prices between end May and now (though they may not have gained as much as earlier).

Among funds that have done better than the Sensex are Zurich India Equity Fund and Alliance Equity Fund. Surprisingly, both have contrasting investing styles. Zurich India Equity Fund attempted to contend with the fall by pulling out funds from the market and, at the end of May, the cash position was around 32 per cent.

Alliance Equity Fund has not pulled out funds to such an extent from the market. Also, Zurich India Equity maintains exposure to technology stocks at less than 40 per cent while Alliance Equity maintains a much larger exposure to technology stocks. Another notable performer, Sundaram Growth Fund, follows an entirely different investment strategy. The fund books profits regularly, has a relatively diversified portfolio and maintains a notably low exposure of around 25 per cent to technology stocks.

Despite such contrasting styles, all the three funds have turned in creditable performances on an overall basis. Alliance Equity has gained and lost by sticking to its exposures. In Zurich India Equity, what the fund lost by timing the market it has been able to recover through the superior performance of such stock picks as Infosys, Raymond, ITC and NIIT.

In the case of Sundaram Growth Fund, while the highly diversified nature of the portfolio limited the potential for high returns, it has also been able to limit the downside. In the end, all that investors would perhaps ask is for the returns to match the risks measured in terms of volatility. If the fund offers lower returns, it also has to be relatively less volatile.