While almost all equity funds have rewarded their investors handsomely in the past three to four years, there is a clutch of funds that clearly stand out. Reliance Growth Fund is one among those whose stellar performance in no small way built the reputation of Reliance Mutual Fund, which now has become the largest fund house in terms of assets managed.
The scheme was launched way back in October 1995 as an open-ended equity growth scheme with the stated investment objective of achieving long term growth of capital by investment in equity and equity related securities through a research based investment approach. It is positioned as a diversified equity scheme that can invest in small, mid as well as the large cap stocks without any group bias and takes a long term view without being excessively bothered about the short term volatility of the markets. This allows the small investors to bet on the long term growth story of India without being affected by the market swings.
Having said that, the fund has put money predominantly in mid cap stocks with excellent growth credentials. It has grown to become one of the largest equity funds in the country with assets under management of Rs 3214 crore as at January 2007, a significant jump from the Rs 1963 crore of assets managed in July, 2006. Fund Manager, Sunil Singhania who has been at the helm from 2004 is a Chartered Accountant and a Chartered Financial Analyst (USA).
On the return front, Reliance Growth has been a top performer posting an annualised return of 33.94 per cent returns since inception compared with 13.92 per cent of its benchmark, the BSE 100. Over the past three year and five-year periods, returns have been exceptional at 52.37 per cent and 63.54 per cent in comparison with the 32.23 per cent and 32.66 per cent return of the benchmark index over the same time frame. In the recent six month to one year horizon too, a period in the stock market which saw superior gains from large caps, Reliance Growth has returned 30.52 per cent and 33.95 per cent gains as against the category median of 22.82 per cent and 25.80 per cent. The manager has been able to contain volatility as well with the indicator beta at 0.91, in line with the median of the peer group of diversified equity funds.
Compared to its many of its peers, Reliance Growth’s portfolio is more diversified with the top three sectors and the top ten stocks contributing at a significantly lower level (about 30 per cent) to the total portfolio value. A relatively high percent of the portfolio (about 12 per cent as at January 2006) is in debt/ cash as well. When asked about this, Madhusudan Kela, Head Equities at Reliance Mutual Fund said that cash levels are maintained as part of an overall investment strategy and the fund manager is not factoring in a drastic fall in market levels.
True to its philosophy, the fund has invested across a range of sectors and has been fairly consistent in keeping many of the top stocks in the portfolio unchanged over the past one year. The top three sectors the fund has invested in are metals, industrial goods and software. In January, the fund increased its exposure to metals, petroleum and auto sector while paring exposure to capital goods, pharma and software sectors.
The fund has also invested in new issues and has added the newly listed Cambridge Solutions to its portfolio the previous month. The price earnings multiple of the portfolio at about 13 is rather low as well compared to many of its peers, which points to a value based investing philosophy. When queried by myiris.com on the approach to portfolio building, Kela said that the fund is essentially a mid-cap oriented and a strict comparison with large cap funds (of which there are many in the equity diversified group) might not be very relevant.
On the whole, while large market corrections could affect this fund’s NAV perhaps more than others, it is a bet on the India growth story especially that of emerging companies. When myiris.com pointed out that mid-cap stocks have run up appreciably in the beginning of 2007, Kela said that the fund management team believes in the mid-cap story of India over the next three to five years and will continue to find compelling mid-cap ideas.