What portfolio choices have helped the Magnum Emerging Businesses fund deliver a 20 per cent return in one year, while the BSE 500 is down 1.6 per cent? We analyse its portfolio during a year to find out.

This fund basically invests in companies that are challengers in their sector within India, or have an export orientation. The fund has a mid-and small-cap focus (market capitalisation less than Rs 7500 crore) with stocks in these categories forming approximately 65 per cent of the total assets. As on date, the fund has beaten its benchmark, the BSE 500 index, during one, three and five-year periods, giving returns of 20 per cent, 46 per cent and 8 per cent respectively.

A notable aspect of the fund's asset allocation during the last one year is the cash and some other current assets holding. From approximately 5 per cent of the total assets in January 2011, these holdings moved up to approximately 20 per cent in November. It has however, come down to 14 per cent in the last two months. The higher levels of cash may have helped the fund ward off market declines. The fund's asset size has grown to Rs 456 crore currently, from Rs 252 crore a year ago.

SECTOR MOVES

Although the fund has invested only in approximately 30 stocks, their picks have come from as many as 15 sectors. However, exposure to consumer goods, which was the top choice until November 2011 and helped the fund generate good returns, was slowly pared down. From a share of 25 per cent of the assets in July 2011, exposure to the sector stands at 13 per cent now. On the other hand, the share of financial services, which came a close second so far, has inched up in the in the last three months. This decision to pare exposure to defensive sectors and add on riskier ones has possibly stood the fund in good stead in the recent rally.

Though the fund had exposure to the construction sector until March last year, it had exited it completely in the intervening period. This sector has made a re-entry in the last two months.

STOCK MOVES

Holdings in its top 5 stocks constitute approximately 30 per cent of the total equity exposure of the fund. A comparison of the top five holdings in January 2012 more than a year ago shows that Page Industries, Manappuram Finance, and Hawkins Cooker have retained their slots. While exposure to Page Industries has been pared from 9.5 per cent in January 2011, to 6.6 per cent now, holdings in the other two remain at around 5-6 per cent. The other stocks, such as Agro Tech Foods, Goodyear India, KCP Limited, Sagar Cements, McDowell Holdings, and Texmaco were held during this period, suggesting that the churn hasn't been high.

However, the fund seems to have churned their portfolio in the few large caps that they have exposure to. Stocks such as Coal India, Bharti Airtel, Infosys, Cairn India and Dr Reddy's labs have been part of the portfolio for a maximum of a month during this one-year period.

Large caps that the fund has added in the last two months are TCS, HDFC Bank and Reliance Industries. Recent exits include Timken India, Aries Agro and Gillette India.

Related Topics