Given the significant underperformance of commodity stocks over the last five years, a revival in the economic prospects may lead to a re-rating of commodity stocks globally. But, timing the recovery may not be an easy proposition.

Indian equities focussed on commodity funds may not capture the benefit from a weak domestic currency. SBI Magnum’s performance track record substantiates this.

Instead, funds which have the flexibility to invest in overseas commodity funds or stocks may be better placed to benefit from a global commodity rally.

SBI Magnum, with a domestic stocks-focussed portfolio, failed to beat the benchmark returns even during the 2006-08 commodity bull run. Over one- and five-year timeframes , the fund underperformed its benchmark.

Performance

On a one-year basis, the fund returned a meagre 4.8 per cent when compared with a 10.4 per cent gain managed by the CNX Commodities index. Higher exposure to stocks such as Aries Agro, Indraprastha Gas, United Phosphorus, Tata Chemicals and Petronet LNG impacted the fund’s one-year performance. In addition to underperforming its benchmark, the fund also lagged peer funds such as Reliance Natural Resources.

Similarly, on a five-year basis, holding on to stocks such as Jaiprakash Associates, Jindal Saw, GNFC and SAIL led to underperformance.

On a three-year basis, though the fund managed to curtail its losses at 5.3 per cent, compared with 7.5 per cent decline in the benchmark; it still lagged its peers such as DSP Blackrock Natural Resources and Reliance Natural Resources.

Portfolio

The sector choices are restricted to metals, materials, oil and gas, and agri-commodities. The fund currently holds 30 stocks in its portfolio. The portfolio is skewed toward stocks such as Coal India and NMDC . Oil and gas stocks constitute 23 per cent of the portfolio. The fund also bets on cement stocks which account for almost 18 per cent of the portfolio.

Small-cap names, such as Sagar Cements, figure in the portfolio, in addition to the large-cap counterparts such as Grasim, Ultratech and Jaiprakash Associates. Fertiliser stocks such as GSFC, GNFC, Deepak Fertilisers and Aries Agro account for 11 per cent of the portfolio. The fund also owns stocks in the power sector, a segment whose fortunes have turned sour over the past few years and are yet to witness a turnaround.

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