Mutual Funds

Birla Sun Life MNC : Hold

Suresh Parthasarathy | Updated on May 07, 2011 Published on May 07, 2011

Overweight on expensive sectors

Unit-holders of Birla Sun Life MNC can hold their investment based on the fund's performance over a three-year period. The themes in the portfolio have had a good run over the last three years and helped the fund post robust returns. In a highly inflationary background, stocks from sectors such as pharma and FMCG are considered a defensive bet compared to interest-rate-sensitive stocks.

However, a long rally in stocks from these sectors has pushed valuations to levels where it may be a challenge for earnings growth to keep pace. The fund's high weight on these sectors means that a repeat of its earlier feat may not be easy.

The fund, over a three-year period, clocked a compounded annualised return of 18 per cent and bettered its benchmark CNX MNC by nine percentage points. In the same period, BSE Sensex and CNX Nifty posted a return of two per cent.

With market in a corrective mood, mid-cap stocks are likely to bear the brunt of the bear raid. With 57 per cent of the stocks in the portfolio falling below market capitalisation of Rs 7,500 crore, the stocks held by the fund may witness high volatility.

That the fund contained declines better than the Sensex in 2008, despite being heavy on mid-caps, however provides some confidence.

It lost 44 per cent of the portfolio value in 2008. The current volatile period, though, may not be apt for taking further exposure in the fund.

Suitability: The fund cannot be termed a good diversifier at this juncture, given its marked tilt in favour of pharma and FMCG stocks. Investors who stay invested in the fund will be better off with the dividend option, given its track record for the past three years.

Performance: Over a one-year period, Birla Sun Life MNC generated a return of 15 per cent, outpacing its benchmark CNX MNC by 10 percentage points. However, it has trailed its peer UTI MNC by one percentage point over six-month and one-year time-frames. With many pharma and FMCG stocks posting negative returns over the past six months, it could have impacted short-term performance.

Portfolio Overview: As of end-March, the fund had 38 per cent of assets in the pharma and FMCG sectors. The prominent stocks from the sectors are Pfizer, GlaxoSmithkline Consumer Healthcare, GlaxoSmithkline Pharma and Nestle India. 50 per cent of the assets are concentrated in the top ten stocks. The fund invested 15 per cent of the assets in interest rate-sensitive sectors of auto and auto ancillaries and 12 per cent in capital goods.

Fund facts: The fund is managed by Mr Ajay Garg. The assets under management are Rs 225 crore. The fund charges an exit load of one per cent if redeemed within one year.

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