SBI Emerging Business - HOLD :: Business Line

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A giant share of small-cap stocks has helped SBI Magnum Emerging Business clock a return of 58 per cent in the past one year, beating its BSE 500 benchmark hollow.

In the market downturn of 2011 too, the fund contained losses better than the BSE 500. The fund invests in stocks considered to have growth potential. This entails a reliance on small-cap and mid-cap stocks, pegging up the risk profile of this fund.

The previous year has seen small and mid-cap stocks soar, taking stock valuations up too. As a result, stocks in the mid-and-small cap basket trade at a premium, which makes them vulnerable to any market decline. The weighted average price-earnings multiple of the portfolio is around 23 times, well ahead of the BSE-500’s 19 times and more in line with the BSE Smallcap index’s 24 times.

In this light, investors can continue to hold investments in this fund but not make fresh purchases. The fund is suitable only for those with an appetite for high risk.

Performance: Over a three-year period, the fund has clocked a return of 22 per cent, well ahead of the 3 per cent return of the BSE 500. Returns are better than peers’ such as DSP BR Small and Midcap fund. But owing to a poor performance between 2008 and 2009, the fund has beaten its benchmark about 70 per cent of the time on a five-year rolling return basis.

Mid-cap oriented funds such as IDFC Premier Equity and HDFC Mid-cap Opportunities have more consistent returns.

Portfolio: The fund actively juggles its sector exposure. In 2012, for instance, the fund picked up sectors such as media, which accounted for almost 9 per cent of the portfolio at one point before it exited the sector. The sector didn’t feature at all in 2011, but did in 2010.

Having increased holdings in construction stocks in late 2011, the fund then shed them towards the middle of 2012, construction stocks having run up well in that period. Similarly, it picked and discarded textile stocks over the past five years, save Page Industries.

It added stocks of the smaller IT companies such as Redington India in 2011, which have done better than large IT software stocks. But the portfolio also features high-risk picks such as Aries Agro, JHS Svengaard, Agro Tech Foods, Sayaji Hotels and Triveni Turbines.