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Aarati Krishnan

PruICICI: Hold Sundaram: Hold

PRUDENTIAL ICICI Growth Fund and Sundaram Growth Fund are diversified equity funds with some commonalities. Both have consistently set an upper limit to the exposure they have to each of the stocks in their portfolio. As a result, both funds hold 30-35 stocks in their portfolio, which is a large number when compared some of their peers.

They are both mid-sized funds. And both figure in the middle, rather than the top, of the performance rankings over the past five years. While PruICICI Growth is benchmarked to the S&P CNX Nifty, Sundaram Growth is benchmarked to the BSE 200.

Given that both of these funds have been outperformed by some of their peers, they may not be the ideal choice for investors looking to start equity portfolios. Given the consistency of its performance, Sundaram Growth appears to be a reasonable option for those looking to diversify their portfolios.

The performance of the two funds has been quite divergent.

PruICICI Growth Fund (PGF), with an annualised return of around 13 per cent since launch, has generated higher returns for initial investors than Sundaram Growth (SGF), which has generated around 9 per cent. SGF was launched in April 1997 while PGF was launched in June 1998.

The PGF's track record is boosted a great deal by its impressive performance (and generous dividend payouts) in the initial years after launch, in the boom years from 1998 to 2000. In the block of three years between March 2000 and now, Sundaram Growth Fund has the superior track record.

Performance for the years from 2000-2003 have to be given higher weightage because, given bearish market conditions and the absence of clear-cut investment themes, this was a more difficult period for equity funds.

PGF has experienced sharper swings in returns from year-to-year than the SGF.

PGF's impressive performance in 1998-2000 appears attributable to its high weightages in IT, particularly telecom, stocks. SGF too dabbled in IT stocks, and even featured many of the small/mid-cap software stocks among its top holdings during this period.

But it maintained a lower weight to telecom stocks than the PGF. By end of March 2000, PGF had 34 per cent of its assets invested in software stocks, marginally higher than SGF's weightage of 31 per cent to software. But PGF had a 17 per cent exposure to telecom stocks against SGF's 4 per cent.

In the choice of stocks, both funds have stayed largely with large-cap, liquid stocks over the past three years, after a brief tryst with mid-cap IT stocks pre-2000.

SGF registered a lower erosion in value in 2000-01 than PGF, probably because of its sharper cutback in IT exposures. While PGF trimmed IT exposures from 55 to 24 per cent between March 2000 and March 2001, SGF pruned exposure to the sector from 41 to 13 per cent.

This, coupled with the fact that SGF had higher exposures to cyclicals such as banks and auto, probably helped its performance in 2000-01.

In 2001-02, both funds notched up a similar positive return.

In 2002-03, the SGF has sharply outperformed the PGF. This is despite the fund starting out with a higher weightage to FMCG stocks (14 per cent) than the PGF (7.8 per cent). FMCG stocks have underperformed the broad market over 2002-03.

PGF also had higher weights in banking stocks (which did well during the year) at the start of the year. But in the first half of 20002-03, SGF appears to have made all the right moves. Not only did it cut back on both FMCG and IT stocks with alacrity (both sectors have underperformed the markets), it also appears to have held on to its banking stocks, which did well.

In contrast, PGF opted for a cut in bank stocks in the first half of the year and kept its IT exposure intact until September 2002.

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