IDFC Imperial Equity Fund: Invest :: Business Line

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Investors can buy units of IDFC Imperial Equity fund (IDFC Imperial), given its long-term track record in delivering steady returns.

While over a one-year period, the fund has marginally lagged the returns of its benchmark Nifty, it has outperformed over three- and five-year timeframes. The fund provides considerable protection against market downsides, while giving reasonable returns during upswings.

Over a five-year period, IDFC Imperial has delivered a compounded annual return of over 16 per cent, thus managing to find a place in the top quartile of funds in its category. In this period, the fund has outpaced funds such as Sundaram Select Focus and Reliance Vision.

During the correction in early 2007, the protracted fall of 2008-09 and in the volatile markets over the last six months, the fund has managed to contain the slide in its NAVs better than the Nifty.

But in the rallies of 2007-08 and in the upswing of 2009-10, the fund was not able to participate fully.

Due to its consistent large-cap stocks focus and conservative approach, IDFC Imperial may be suitable for investors with a low-risk appetite, and looking for steady rather than spectacular returns. The fund can act as a diversifier to an investor's portfolio rather than being a core fund.

Portfolio and strategy: IDFC Imperial takes a very cautious approach towards cash deployment, especially during market volatility or corrections. During heavy dips in the market during 2008-09, the fund invested in debt and cash to the tune of over 25 per cent of the portfolio.

This helped it contain the slide in its NAV much better than its benchmark.

But when the markets started rallying from March 2009, the fund was slow to deploy cash and it took a good four-five months for it to fully invest in equity. This led to its underperformance in the initial leg of the rally.

Banks and software have been among the top sectors invested in by the fund across market cycles. In 2009, the fund also had significant exposure to telecom stocks, which were outperformers in the first half of that year. But thanks to the tariff war and the regulatory uncertainties surrounding the sector, leading to stock price erosion, the fund has significantly reduced exposure to it. Automobiles figure prominently in the portfolio now, as do pharma and consumer non-durables over the last one year. This gives the fund a defensive tilt. The fund has stayed out of stocks of construction and real-estate companies, which are perceived as risky sectors.

IDFC Imperial has a very compact portfolio of stocks with an average of 28-30 stocks, which makes it quite nimble.

With an eye on valuations, the fund has exited stocks such as GSK Pharma, HDFC, Grasim Industries and Nestle India over the last one year. It has added the shares of companies such as Bharti Airtel, Coal India, Oil India and HCL Technologies, suggesting reasonable value buying strategy.