The Hindu Business Line : Birla Sun Life Special Situations Fund: Monitor closely

Birla Sun Life Special Situations Fund is an open end equity fund that will invest in contrarian picks or stocks where there is potential for unlocking of value due to a corporate action.

Companies that are charting a foray into a new business, those which may de-merge or list subsidiaries, potential takeover targets and companies which may hive off assets are some of the “special situations” being targeted by the fund.

Return/risk profile: While the return potential it carries is high, the fund’s risk profile will be also high. The fund is suited only to investors who own other equity products in their portfolio. Stocks in contrarian or special situations can carry significant downside risk if the expected event or unlocking of value doesn’t materialise.

Plus, returns may also be packed into short time-frames, requiring the fund manager as well as investor to monitor closely and take profits, to lock into supernormal returns, if they materialise. To reduce downside risk, this fund plans to hold a fairly large portfolio of 50-55 stocks, with a 3-5 per cent allocation to stocks where there is greater conviction about value unlocking. Exposures will be limited to 1-2 per cent in stocks where the event carries higher uncertainty.

Pros and Cons: The fund may be highly reliant on the experience and timing skills of the fund manager, given the need to recognise stocks across sectors that fit into the “special situations” mandate. Also, quick execution of transactions will also be necessary to capitalise on price moves.

A track record of over 10 years in managing diversified equity funds, stands Birla Sun Life in good stead in this regard. Investors in this fund may have to brace for long periods of underperformance relative to the broad market, as stocks chosen for their ‘contrarian’ qualities may not capitalize on overall market momentum.

It is necessary to mention that pure contrarian funds launched over the past couple of years have under-performed their plain vanilla peers.

Investors in this fund may have to brace for a 2-3 year waiting period, at the minimum, to see the ideas deliver value. Close monitoring of the fund to take advantage of periods of high returns, may also be essential.

Fund Manager: A. Balasubramanian

Details: New fund offer closes on January 15. The benchmark is BSE 200. Minimum investment is Rs 5,000.

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