Fund Call. SBI Blue Chip: Over 10 years old and going strong

The rally since January has brought the market close to its all-time highs. If you seek safe bets now, large-cap funds that are less volatile are a good option.

SBI Blue Chip is a fine choice in this category. The fund, more than a decade old, has a strong long-term track record, doing very well after 2011. Over three years and five years, with annualised returns of 19-21 per cent, it has beaten the benchmark S&P BSE 500 comfortably, by more than 7 percentage points.

The winning consistency is quite high; on a one-year daily rolling return basis, the fund has done better than the benchmark almost 95 per cent of the time. It has delivered well during market upsides and contained downsides effectively.

The fund also figures in the top quartile in the large-cap category over long periods, doing better than peers such as Birla Sun Life Frontline Equity and ICICI Prudential Focused Bluechip Equity.

The track record would have been more impressive but for the dip in performance in recent times. SBI Blue Chip’s 21 per cent return last year is a tad lower than the benchmark’s 22 per cent and is also less than the category average. This could be due to the cautious approach adopted by the fund in the wake of a rising market and the demonetisation move in November.

While it invests predominantly (70-80 per cent of the corpus) in large-cap stocks, the fund also takes mid-cap exposure of up to 20 per cent to give a kicker to returns. But over the last year, the mid-caps have been pared considerably — from about 18 per cent of the corpus in December 2015 to about 11 per cent in January 2017. Also, the fund upped allocation to cash and equivalents sharply from November; they account for nearly 14 per cent of the corpus as of January 2017.

The market and mid-cap stocks revived strongly after the demonetisation blues of November and December, putting SBI Bluechip on the back foot. But playing it safe could work to the fund’s advantage. Many uncertainties, both local and global, persist and the fund seems well-positioned to move in quick time and make use of any market weakness that may arise. The fund’s performance was also affected by it being underweight on stocks in the financials, metals, consumer staples and utilities sector. It has now taken some exposure to metal stocks.

SBI Blue Chip follows a growth investing approach. While this can mean bets on some expensive stocks, the risk is reduced by a large portfolio. Of the nearly 50 stocks, only HDFC Bank has a share of more than 5 per cent in the corpus. While the portfolio turnover is on the higher side, it helps that, of late, the fund’s expense ratio has been reduced.

The fund has been able to pick multi-baggers such as Motherson Sumi and Pidilite Industries that have boosted long-term returns. There have been some missteps too, such as paring stake last year in Reliance Industries; the stock has rallied of late.

Overall, though, the right moves have outnumbered the wrong ones. Sector rotation has been astute too. Over the past year, the fund has cut stake in software and pharma stocks that have been under pressure while upping bets on the auto sector that has done well. Banks, despite cut in exposure last year, form the largest sector holding.

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