Birla Special Situations Fund: SELL:: Business Line

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Bad stock choices have done in the fund.

With the market generally favouring defensive themes, such as IT, pharma and FMCG besides select stocks in other segments, most funds with offbeat mandates have struggled to beat their respective benchmarks.

Birla Sun Life Special Situations Fund is a classic example. Its performance has consistently slackened over the past five years.

A flop theme

The fund’s mandate to invest in stocks that will get a boost from events such as corporate action to unlock value, pragmatic changes in business strategy and favourable policy decisions does not seem to have worked. It has continued its losing streak across one-, three- and five-year time periods. The underperformance has further widened in the last three years. The fund has not just lagged the benchmark BSE 200 Index, but also underperformed peers such as L&T India Special Situations Fund and Religare Invesco Contra Fund by a big margin across all time frames.

Though Birla Sun Life Special Situations’ sector calls were largely in line with its peers, bad stock choices resulted in the sluggish performance. For instance, the fund missed the buying opportunity in stocks such as Bayer CropScience, Amara Raja Batteries and Page Industries which provided a big boost to its peer L&T India Special Situations Fund.

The fund’s strategy to reduce exposure to consumer and IT stocks well ahead of the big rally in these shares impacted performance. For instance, the fund completely exited TCS and Infosys ahead of the major rally in these stocks. As a result, Birla Special Situations performed quite inconsistently. In the last five years, its one-year returns were 83 per cent of the time lower than the BSE 200.

Underperforms peers

A systematic monthly investment of Rs 1,000 in Birla Sun Life Special Situations Fund over a five-year period would have fetched a meagre 5 per cent annually. Had you invested the same amount in L&T India Special Situations Fund, you would have made annual returns in excess of 12 per cent in the last five years.

The scheme suffered steeper losses than its benchmark during every market fall. What is more, the fund did not succeed in bettering the benchmark even during recovery rallies.

The fund has been increasing exposure to pharma stocks in the last one year. Allocations to this sector rose from 6 per cent in 2012 to 14 per cent by November 2013. It has pruned exposure to the beaten-down financials space from 26 per cent last year to 19 per cent now.

The fund has been going down the market cap curve by reducing exposure to large-cap banks and pharma companies and adding mid-cap stocks in these sectors. For instance, it cut exposure to large-cap pharma stocks such as Cipla and Sun Pharma while adding mid-caps Aurobindo Pharma, Strides Arcolab and Glenmark Pharma to its portfolio.