GIC Growth Plus II: Pare exposures/Switch

Recommendation: Pare exposures/Switch

Suresh Krishnamurthy

INVESTORS in GIC Growth Plus II can reduce their exposures to the fund.

The performance of the fund after the end of the bull-run in early 2000 has not been particularly impressive, compared to its peers. In this backdrop, exposures to the fund can be reduced. Its performance has also lagged the indices such as Nifty and S&P CNX 500 during this period. Investors can switch to funds with a relatively better performance record over both phases of the market cycle.

Suitability: The fund's mandate is to invest in quality growth stocks. Investing in growth stocks has generally been relatively higher in risk compared to the market average. The NAV has also shown greater volatility than the Nifty and S&P CNX 500. In this backdrop, the risk involved in holding units in the fund is relatively higher.

Performance: Over the past three years, the fund has generated returns of around 18.8 per cent. This is better than what the Sensex and S&P CNX 500 have achieved, though the GIC Growth Plus II has lagged the Nifty. In addition, much of the superior performance is attributable to the period before 2000.

Investors who entered in 2000, however, have reason to feel disappointed. Since that time, the fund has lagged the indices, except between May and August this year. The volatility in performance is another cause for concern.

The fund declared dividends of 30 per cent in October 1999 and 20 per cent in January 2000. Investors who did not re-invest the dividends would have, not surprisingly, generated better returns.

Portfolio allocation: At the end of October 2001, the fund was fully invested. Around 98 per cent of the net assets were invested in equities with rest invested in debt instruments. The fund is relatively focussed with large exposures to particular stocks and sectors. The portfolio at end-October 2001 is notable for its overweight position to sectors not highly favoured in the markets now, such as telecom, software and entertainment.

The top sectoral exposures are in telecommunications, healthcare, and software, which account for around 52 per cent of the portfolio. In stocks, the top exposures are MTNL, ITC, Cipla, Nestle India and L&T. These five accounted for 49 per cent of the net assets at the end of October 2001. Fourteen stocks account for 95 per cent of the net assets.

The fund has also invested in stocks such as Galaxy Entertainment and Champagne India. These two stocks account for 7.1 per cent of the net assets at the end of October 2001. The focussed exposures to the telecommunication sector is certainly cause for concern. Similarly, the overweight exposure to the software sector enhances the risk profile.