DSP Blackrock Focus 25: Rock-steady in the midst of volatility

After touching new highs in August, Indian equities have taken a breather over the last three weeks. Given that the market has partied hard since December 2016, the performance of equities is expected to remain docile in the near term.

Large-cap funds that invest in relatively less volatile bluechip stocks may be a good way to play the volatility. While many large-cap funds have the leeway to invest 20-25 per cent in the stocks of mid- and small-sized companies, there are a few schemes that bet only on bluechip names and take concentrated bets in these stocks. These schemes can cushion the portfolio during down cycles. DSP BlackRock Focus 25 is one such.

According to the mandate, the scheme, at any given point in time, will have no more than 25 stocks in its portfolio and these stocks shall constitute at least 95 per cent of the total amount invested. Investors with a moderately high risk appetite could consider investing a small portion of their surplus in the fund, through the systematic investment route.

The scheme’s performance is certainly not the best in the large-cap oriented scheme category. In fact, the scheme has even marginally underperformed its benchmark over the past one year — scheme returns were about 3 percentage points lower than its benchmark, BSE 200 Index. However, the fund’s performance is in the top quartile over a five-year period.

The weak performance over the last three months has been a drag on its one-year performance. This has been largely on account of the steep fall in the price of its select stock bets. Sample this.

State Bank of India (7.52 per cent of holding as of July 30), which is the scheme’s second-largest bet, lost over 12 per cent in the past month, even as the benchmark BSE 200 Index was flat.

Likewise, FMCG conglomerate ITC, wherein 5.65 per cent of the scheme was invested, has shed over 17 per cent over the last two months.

Similarly, the stock of IT major Infosys in which 3.78 per cent of the holding was invested, has been under pressure due to concerns over top management shuffle. These have had a negative rub-off on the scheme’s one-, three- and five-year absolute returns.

However, though the scheme is not the best one to play the up-cycle, it certainly is a good hedge against volatility. For instance, during the March 2015-February 2016 period, even as the benchmark lost nearly 21 per cent, the fund managed to contain the fall at less than 19 per cent.

The scheme’s mandate to invest at least 80 per cent of its assets in stocks that are part of the BSE 200 Index at any given point in time has insulated the fund from turbulence.

Also, over the last three years, the fund’s daily one-year return has been higher than the benchmark’s almost 85 per cent of the time, implying consistency.

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