Birla Sun Life Equity Fund: Hold ::Business Line

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Investors can retain the units of Birla Sun Life Equity fund. After lagging the benchmark on a three-year basis, the fund’s performance has improved over the last one year.

A marked shift in the fund strategy to keep away from high-risk stock bets has helped performance. The fund envisages holding at least 50 per cent of its assets in large-cap stocks, at any given point.

Until two years ago, the fund was betting big on stocks of emerging businesses which were in their early growth phase. This served the fund well in bull phases while affecting performance during bearish markets as mid-cap stocks are prone to take a hard knock during falls.

Even as stocks of these companies with high growth prospects did well in the bull phase that lasted until December 2007, they witnessed unprecedented erosion in value after the market crash in January 2008.

As a result, the fund fell sharper than its benchmark in a downturn. For instance, during January 2008-February 2009, the fund lost over 62 per cent, compared with a 60 per cent fall for the benchmark. Similarly, during December 2010-11, it shed 28 per cent in value, while the benchmark lost a little over 24 per cent. Sector allocations and stock selections played a role in the underperformance. Higher-than-benchmark exposure to sectors such as engineering and lower exposure to IT stocks dragged fund returns. Significant exposure to stocks such as United Breweries, Future Retail and Megasoft also contributed to the slack performance.

But the fund manages to better its benchmark in recovery cycles. For instance, it clocked 142 per cent gains during the period February 2009-November 2010, higher than the 134 per cent rise in the benchmark.

VALUE INVESTING

The change in strategy from a growth-driven approach to value investing seems to have started to pay off. For instance, with valuations in the consumer goods space tightening, the fund has reduced exposure to consumer stocks.

Increased focus on stock valuation while pursuing high growth opportunities has helped it in the last couple of years.

The fund has had a new investment manager in Anil Shah who took over in October 2012.

The fund currently sports 63 stocks in its portfolio, making its holdings quite diversified across stocks and sectors. The weighted average market capitalisation of stocks in its portfolio is over Rs 60,000 crore, giving it a distinctly large-cap flavour.