Reliance Growth: Hold

Unit holders of Reliance Growth can hold their units despite its slowing performance in recent times.

Although the fund has had a good performance for the past 15 years, its ability to outpace its benchmark by a significant margin — a feat it achieved before the 2008 slowdown — has come down in recent years.

During a five and three-year period, the fund has clocked a compounded annualised return of 17.9 per cent and 15.8 per cent respectively and outpaced its benchmark BSE-100 by five and two percentage points.

However, over a three-year period the fund underperformed its peers such as IDFC Premier Equity and HDFC Equity by more than eight percentage points.

During that period, its mediocre performance placed the fund in the bottom quartile in its category.

Although the fund contained losses during market declines in 2008, its cautious approach of holding cash for too much time let down performance since the pick-up in 2009.

The current portfolio is overweight on less-favoured sectors such as banks and software and underweight on sectors that have seen a sharp run-up in valuations. The current portfolio holds promise for some improvement in performance.

Suitability: Reliance Growth invests 60-70 per cent of its assets in stocks with market capitalisation over Rs 7500 crore. To this extent, investors cannot look for a clear mid-cap focus in this fund. Therefore, investors willing to hold a portfolio with one- third of the assets in midcap stocks with expectations of returns better than the large cap index BSE 100 can stay invested in the fund. However, investor looking for fresh exposures currently can consider HDFC Equity or IDFC Premier Equity ahead of this fund.

Performance : The fund's huge asset base may limit the fund from adopting an aggressive mid-cap strategy. It may not therefore be able to mimic its earlier performance of outpacing the benchmark by a wider margin.

With markets being in a volatile phase and driven by a select few sectors, funds that have lower exposure to such sectors will underperform in the market.

Reliance Growth appears to be experiencing such a phase; which could beone of the reasons for its one-year return of minus 2.5 per cent, trailing its benchmark by 4.5 percentage points.

However, the buy-and-hold strategy adopted by the fund may help in the long run, despite short-term underperformance in some of the sectors in hold. Investors may watch its performance over the next 3-4 quarters for any improvement.

Portfolio Overview: In June 2011, the top three sectors — banks, pharma and software — accounted for 35 per cent of the portfolio.

Eighty-five per cent of the fund's assets are concentrated in 37 stocks and average market capitalisation of the fund is Rs 16,517 crore.

During the past two years, the top performing sector, consumer non-durables, did not receive very high weight; this could partly explain the underperformance of the fund.

Reliance Growth is managed by Mr Sunil Singhania.

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