The Hindu Business Line : SBI Magnum Contra Fund: Sell

INVESTORS in the SBI Magnum Contra Fund can sell their holdings and switch to diversified equity funds with a better track record. The fund's performance over different time periods has been unimpressive. Even the latest bullish phase in stock prices appears to have bypassed it to a large extent. The NAV has moved up by about 12.9 per cent over the past year.

The fund continues to do better than the BSE Sensitive Index (Sensex). But it trailed most equity funds during this period as well as in the period since its launch in August 1999.

In the latter, the returns were 5.9 per cent per annum, looking up due to the recent bullish phase, after a protracted stay at less than 1 per cent per annum.

The rather indifferent performance is despite the portfolio holding economically sensitive stocks, which have had a substantial re-rating over the past six months. Frequent trading appears to have frittered away gains. During this period, even funds with sizeable allocation to the IT sector stocks — which have had a more modest run — fared better.

In this backdrop, investors can cut exposures with the NAV at about the Rs 12.8 level. Funds can be re-invested in mutual fund avenues such as Prima, Prima Plus, HDFC Equity, Alliance Basic Industries and HDFC Tax Saver.

Suitability: As a sector-specific fund, the Magnum Contra Fund has a higher degree of risk than diversified funds. But its risk levels are lower than single-sector focussed funds with an eye on areas such as IT, pharmaceuticals and banking.

The wider investment ambit of the Magnum Contra Fund gives it a more diversified portfolio. But the returns have not been adequate, both in isolation, and especially when one considers the risk element involved.

Investors have not been compensated for the higher risks. If this is the case, despite the launch in August 1999, and even after the ongoing bullish phase, the performance does not inspire much confidence. The sizeable addition of mid-cap stocks over the past four months could also raise the risk levels.

Portfolio overview: The following are key portfolio trends over the past six months:

The fund continues to be small-sized, with net assets of about Rs 11.6 crore. The small asset base should provide for considerable flexibility in management, and help put through buy/sell decisions at low impact cost.

The fund has till May 2003 maintained cash/cash equivalents of about 15 per cent. This is considerably lower than the cash hoard of close to 24 per cent eight months ago.

To an extent, the higher cash levels have had an adverse effect on returns. However, in July the fund moved almost to a fully invested status, with equities accounting for 97 per cent of net assets.

The fund has stayed with frontline stocks such as HPCL, BHEL, Reliance Industries, Tata Steel, Tata Motors and Container Corp, to name a few at the top end of the portfolio.

It has picked up a few mid-cap stocks such as Bharat Electronics, Praj Industries, Ashok Leyland, Jubilant Organosys and Indian Rayon, among others, over the past four months.

BHEL has moved from a top holding to one of the many stocks held, and moved back into the top slot again in July. This holding is likely to benefit the fund, given the recent spurt in the stock price.

The portfolio is now spread across a larger number of stocks, with a higher weight to mid-cap stocks, than it was earlier in 2003. The top ten stocks account for 55 per cent of assets now. In early 2003, the concentration levels were higher, with the top ten holdings making up 67 per cent of assets.

: SBI Magnum Contra Fund was launched in August 1999 as part of the Magnum Sector Funds Umbrella. The minimum investment is Rs 2,000. There is an entry fee load of 1.75 per cent. There is no exit load. The fund manager is Mr Ajit Bodke.<137>

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