New Fund Offer . Aditya Birla Sun Life Special Opportunities Fund NFO: Eyeing ‘special situations’

Aditya Birla Sun Life (ABSL) Mutual Fund is rolling out an open-ended equity fund — Aditya Birla Sun Life Special Opportunities (ABSO).

According to the fund house, a special situation refers to unique challenges that a business, a sector or an economy may face that leads to temporary mispricing of stocks, creating an investing opportunity.

The new fund offer (NFO) is open for subscription until October 19.

The scheme will also reopen within five business days of the NFO’s close for ongoing purchase.

Investment strategy

According to the fund house, special situations include corporate restructuring (such as merger/demerger and delisting), industry disruption (for instance, disruption in the telecom industry on Reliance Jio’s entry), change in government policies or regulations (like the implementation of GST, focus on Atmanirbhar Bharat), and major macro events impacting the global economies (similar to the global financial crisis in 2008 and the taper tantrum in 2013).

Nestle India, which fell by 29 per cent due to the Maggi controversy but rallied later; opportunity in Bajaj Finance when the NBFC sector lost its favour after the IL&FS default; and the value unlocking in Hindustan Zinc after the government disinvested its stake in the company are some examples.

Now, the AMC considers the impact of Covid-19 as a special situation.

In an uncertain economic environment, such as the one right now, the fund house believes there would be a possibility of consolidation and emergence of new trends across sectors. It also expects significant re-rating of the stocks to take place once things normalise.

The scheme sees special situation opportunities in sectors such as aviation, real estate, telecom and public sector entities including banks. ABSO will have a focussed portfolio of 35-40 stocks. The fund will be benchmarked against the S&P BSE 500 Total Return Index (TRI).

Our take

Post the issue of new categorisation norms by SEBI in 2018, funds with special situations theme were re-categorised into other funds.

Aditya Birla Sun Life’s Special Situations Fund with a similar investing strategy was merged with its Equity Fund in April 2018.

According to the fund house, ABSL Special Situations (the older fund) was more focussed on special situations arising from company-specific events/developments, while ABSO has a much wider investment universe and will focus on special opportunities arising from not only company-specific developments, but also industry-specific events, regulatory changes, macro-economic developments, global events, etc.

As on March 2018, the earlier Special Situations fund had delivered returns of 11.2 per cent and 21.7 per cent CAGR (compound annual growth rate) for three- and five-year periods, respectively. During the same period, its benchmark S&P BSE 200 TRI recorded 9.3 per cent and 15.8 per cent, respectively. Since its inception in January 2008 till March 2018, the fund delivered a return of 9.23 per cent CAGR against the benchmark return of 8.5 per cent.

Another fund that had a similar investment strategy was L&T India Special Situations Fund. This fund’s objective was to invest in stocks that are out of favour, undervalued, or in special situations such as mergers, turnaround and takeovers. However, this fund was also merged with L&T Large and Midcap after the new categorisation norms.

In the current scenario, the investment strategy of ABSO is close to that of value/contra or opportunities funds. While value-investing involves picking stocks that are trading less than their intrinsic value, contrarian style of investing involves buying what others are selling and selling what others are buying, considering valuations and fundamentals of the stock. Currently, contra funds use a blend of contra and growth strategies. On the other hand, opportunities funds uses a blend of growth, value and contra strategies.

The investment strategy of ABSO would involve going against the grain and investing in out-of-favour stocks. The success of the fund hinges a lot on the calls taken by the fund manager. Also, the bets taken by the fund may take a longer time to pay off. Only those with a high risk appetite should consider investing in this fund.