AIG India Equity Fund: Invest

With a small asset base and offbeat stock choices, the AIG India Equity Fund has not attracted much attention in the last four years. However, if performance is all that matters, this tiny fund is a good choice for investors seeking to diversify their portfolio. AIG India Equity Fund's three-year returns (annualised) of 15.5 per cent and one year decline of about 10 per cent place it among the top ten funds in its peer group of equity funds.

Its launch may have been not very well-timed in May 2007, but the fund has been reasonably good at riding market rallies as well as containing downside during falls in the last three years. Investors can consider adding the fund to their portfolio. Recurring speculation about a possible stake sale by the sponsor is a worry, which is why we recommend that this fund be a diversifier to the investor's portfolio.

Allocation

Its investment mandate allows AIG India Equity Fund a free hand in choosing stocks from across the large-, mid- or small-cap segments. However, a run through of the actual portfolio suggests that the fund has been quite conservative on this score, retaining a large to emerging large-cap stock focus in recent months.

The fund's asset allocation pattern is also slightly different from most equity funds, with a provision to move up to 20 per cent of the portfolio into cash and debt. This, the fund has used to good effect during the recent market correction and contained declines well.

The fund's NAV has dropped by 11 per cent in the last one year while the BSE-100 is down 23 per cent.

Strategy

In terms of portfolio strategy, AIG India Equity has displayed a large-cap stock bias despite its multi-cap mandate with its average market capitalisation at Rs 30,900 crore as of August 2011. The portfolio holdings in recent months show a bias towards the less expensive stocks in the large-cap basket, with Hero Motocorp, Infosys, HDFC Bank and Petronet LNG among the top holdings in August 2011.

The fund's small asset base of Rs 155 crore, has been a distinct advantage, allowing it to stick with a 25-30 stock portfolio, even while adhering to quality stocks. That the fund has been able to build positions in stocks such as Hindustan Zinc, Castrol India, GMDC and Bosch, which have low floating stock, shows that its compact size has been an advantage in scouting out unusual opportunities in the market.

Pharma, automobiles, gas and banks have been the top choices in recent months. The fund has managed to contain downside without adding to the ubiquitous but expensive FMCG stocks.

The only worry for investors in the fund would be recurring speculation about a possible stake sale by the parent. Such a change, if at all it materialises, could lead to a change in the fund's managers and its investment style. However, in the event of a change in ownership, investors will be offered an exit option at NAV.

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