SBI Focused Equity: Concentrated bets in equity

The fund has outperformed its benchmark over one-, three- and five-year periods

Investors looking for a multi-cap fund with a concentrated portfolio can buy the units of SBI Focused Equity (Formerly SBI Emerging Businesses Fund). SEBI’s norms on categorisation and rationalisation of mutual fund schemes has not impacted the fund’s mandate and portfolio drastically.

Under SEBI’s strictly defined ‘Focused’ category, the fund will have to take concentrated bets (maximum of 30 stocks) by investing in equity to provide long-term capital appreciation to investors. The fund, in its earlier avatar, too, invested in 20-30 stocks, predominately mid-caps.

The fund previously was categorised as a mid-cap fund with exposure of up to 90 per cent in equity and up to 10 per cent in money market instruments. Now, it will invest across market capitalisation, with 65- 100 per cent exposure to equity, and the balance in debt.

Leeway to invest across market caps and higher investment in debt can somewhat peg down the fund’s risk. The fund’s benchmark, S&P BSE 500, has been retained.

SBI Focused Equity has outperformed the benchmark over one-, three- and five-year periods. In the longer time-frames, for instance, over the past seven and 10 years, the fund has outshined the benchmark by delivering 4-6 percentage points higher returns.

Given the recent sharp run-up in the equity market, investors can take the systematic investment plan (SIP) route to mitigate the risk.

Performance, strategy

Following a shaky performance in 2013, the fund has managed to bounce back in subsequent years. After weathering the choppy 2015 and 2016 markets well, it clocked a return of 44.7 per cent in 2017, exceeding the benchmark by 7 percentage points. The scheme follows a bottom-up approach in stock selection. Over the past one year, sectors such as construction projects and telecom have entered the portfolio basket, while commercial services and auto ancillary were moved out recently.

Top three sectors such as finance, banks and consumer non-durables constitute a major chunk of the portfolio, with 54 per cent allocation. The fund has almost doubled its asset allocation in the finance sector over the past three months. Stocks such as Bajaj Finance, IndoStar Capital Finance and Bajaj Finserv have got a place in the portfolio, and have done well. Moreover, long-term holdings, namely HDFC Bank, Procter & Gamble Hygiene and Health Care, Kotak Mahindra Bank, GRUH Finance and Solar Industries India, continue to deliver superior returns.

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