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Investors with a perspective of over five years and willing to invest in a basket of stocks comprising large, mid and small caps can consider adding DSP BR Equity Fund. The fund's ability to deliver returns across market cycles and contain losses in the down phases provides confidence, despite its mediocre one-year performance.
The fund, over three- and five-year periods, delivered return of 26.3 per cent and 12.2 per cent against its benchmark CNX 500 return of 22.7 per cent and 5 per cent. The fund's return is superior to the average returns of multi-cap funds over a five-year period. In fact, the fund outpaced yet another solid performer, HDFC Equity, by a percentage point over the above period.
The fund's investment strategy of investing primarily in large cap stocks can cushion it during market corrections while its exposure to mid- and small-cap stocks peps up portfolio return during market rallies.
Despite its exposure to the more vulnerable smaller market capitalisation segment, the fund has so far managed the risks attached to this segment by constructing a portfolio with lower “Beta” than its benchmark. This essentially means picking stocks that are less volatile than the benchmark itself. This said, the fund's risk profile still remains higher than pure large-cap funds. Hence, the fund is suitable for investors willing to go in for that extra bit of risk to secure slightly higher return.
Performance
Over a one-year period, DSP BR Equity's NAV declined by 16.2 per cent compared with 18.8 per cent shed by its benchmark CNX 500. Although the fund's performance may seem discouraging seen in isolation, it is not surprising given its exposure to stocks in the smaller market-cap segment, which has seen steep declines in the last one year. For the same period, DSPBR Equity with an average market capitalisation of Rs 12,500 crore, actually contained losses better than HDFC Equity whose market capitalisation is Rs 32,000 crore. However, the fund has been rather active in churning its portfolio too often. This may also have been counter productive and impacted its one-year returns.
Portfolio Overview
In the October portfolio, the fund held 71 stocks and the top ten accounted for 30 per cent of the assets. The fund restricted its single stock exposure to less than 4 per cent and half of the stocks in the portfolio accounted for less than 1 per cent of the assets. This diversified portfolio strategy is likely to provide a cushion during market falls but equally hold the risk of restricting performance during short-term market rallies.
The top three sectors are banks, auto and pharma. The fund upped its exposure to beaten down banking stocks by 50 per cent in the past few months and raised holding in the sector to 15 per cent of the portfolio. Bank stocks such as Kotak Mahindra Bank, SBI and HDFC Bank top the list.
In the past few months, the fund reduced its weight in consumer non-durables and software sectors. The fund is managed by Mr Apoorva Shah.
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