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Suresh Krishnamurthy

INVESTORS in Canpremium can consider reducing their exposures to the fund. Canpremium has a good performance record over a three-year period. The fund's expense charge of about one per cent is the lowest among balanced funds. However, the performance in the last year has been unimpressive.

And, in the last three months, the fund has ceased to be a debt-oriented balanced fund. The manner of equity investing in the past six months also does not inspire confidence.

Equity hiked: Canpremium is marketed as a debt-oriented balanced scheme suggesting that exposure to debt would be higher than equity. However, in the last three months, the exposure to equity has increased sharply and has stayed above 50 per cent at the end of June and July. Importantly, the increased exposure to equities is the outcome of a conscious shift in asset allocation.

The hike in equity may have been made to compensate for the poor performance of the fund in the last year. In the last 12 months, the fund has trailed many of its peers and is one of the laggards among balanced schemes.

The fund's poor performance in the last year is mainly due to the higher allocation that it has consistently maintained in cash and cash equivalents. Between September 2002 and May 2003, allocation to cash was above 20 per cent. Such a higher allocation to cash when both the debt and equity markets were trending higher cost the fund dearly.

Substantial churning: Canpremium is a small-sized fund with assets under management of only about Rs 6 crore. In keeping with its size, the fund does not practise active management of the debt portfolio. For the last 12 months, investment has been made in a specific government security. In this context, higher returns are dependent on active management of the equity portfolio.

The fund has been indulging in active management of the debt portfolio. Portfolio turnover is about 2.5 times. That is, the net assets are turned over more than twice in a year. This is a high ratio for a debt-oriented balanced fund that buys and holds a single government security.

However, the fund does not have the returns to show for the higher portfolio turnover. Importantly, a small-sized fund has certain advantages. It can take exposure to small and mid-cap stocks and enhance the returns. Yet, even though the fund did invest in small and mid-cap stocks, returns have been uninspiring.

Aggressive tilt: In fact, equity investing in the last three months suggests an aggressive tilt absent earlier. The fund has shown interest in small-cap stocks such as Granules India, HEG, Monnet Ispat and Welspun Stahl Rohren. These stocks accounted for nearly 13.5 per cent of net assets and nearly 23 per cent of the equity portfolio at the end of the July 2003.

This is directly in contrast to the approach followed in the earlier months, when the fund preferred mid-cap stocks. Stocks such as Century Textiles, Infotech Enterprises, Shipping Corporation, Aurobindo Pharma and Bharat Forge were part of the portfolio earlier.

These were relatively more liquid stocks with a lot more pedigree than the small-cap stocks preferred now.

In fact, sector churning followed by the fund in recent months is also reflective of an aggressive tilt. The top sector in the portfolio and exposure to that sector has fluctuated.

For example, banks constituted 20.4 per cent of net assets at the end of May 2003. However, by the end of July, exposure was reduced to nil. Similarly, pharmaceutical stocks accounted for less than five per cent at the end of June 2003 but became the top sector at the end of July with an exposure of slightly more than 11 per cent.

The aggressive tilt to equity investing will not lend to stability in fund performance.

However, that is what is expected from a debt- oriented balanced fund such as Canpremium. Given this backdrop, investors can reduce exposures to the fund.

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