The Hindu Business Line : Standard Chartered Classic Equity: Hold

INVESTORS in Standard Chartered Classic Equity can stay with the fund. Although its performance has been unimpressive, it would be better to give the fund manager more time to prove his case.

Performance: Classic Equity was launched this August. Since then, the market has gone through a roller coaster ride. The net asset value per unit of Classic Equity has gone through an even rougher ride than many of its peers.

Fluctuations in the fund's NAV have been significantly higher than many schemes such as Franklin India Bluechip, Templeton India Growth, Fidelity Equity and Sundaram Growth. This pegs the risk profile higher. In terms of returns too, Classic Equity fares quite low on the ranking list.

A couple of months are too short a time to assess the fund manager's performance. There are, however, a few issues that investors should not lose sight of. First, the higher volatility in scheme's NAV may be a direct result of the stock selection strategy adopted by the fund.

Aggregate exposure to companies with cyclical earnings, turnaround companies and high-growth companies account for a significant proportion of net assets.

At the end of September 2005, Classic Equity had nearly 60 per cent of net assets invested in stocks with a market capitalisation of less than Rs 2000 crore. The stock selection, too, indicated a preference for a higher level of risk. For instance, stocks such as Financial Technologies, Pantaloon Retail, Royal Airways, Sterlite Optical and Dhampur Sugars accounted for as much as one-third of net assets.

Stock selection and sector allocation clearly indicate the fund manager's belief that Indian industrial growth has now entered a high-growth trajectory and will remain in such a trajectory for some time.

Only such bullish optimism appears to have dictated portfolio construction. This view may come true in the years ahead but it does enhance the risk involved.

True to mandate: The portfolio constructed, however, is in many ways true to the mandate for the fund manager. The objective of the fund is to invest with an unrestricted investment style.

There would be no limits on investing in a particular section of the market or a particular style of investing.

True to its mandate, the fund has also strictly observed limits regarding allocation to stocks and sectors.

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