The fund’s modified approach continues to pan out in line with our expectations.
In Aug 2011, the fund’s investment approach underwent a change. Previously known as Reliance Equity Advantage Fund, manager Sailesh Raj Bhan ran a pure-play large-cap strategy. Also, the portfolio’s sector weights were firmly aligned to those of the index. Clearly, executing such a strategy constrained the manager.
In a bid to give Bhan more leeway, the approach was modified. The fund’s investment universe has been expanded to the top 200 companies by market cap, thereby allowing investments in small/mid-caps. While the sector weights are yet somewhat aligned with those of the BSE 200 index, in certain sectors the manager is now willing to take bigger deviations than he previously did. In our opinion, the changes are a step in the right direction: Firstly, Bhan is a proficient stock-picker in the small/mid-cap segment. Also, his track record on other funds suggests that he is at his best while deploying an unconstrained approach. In effect, the new approach helps Bhan play to his strengths.
The fund also benefits from Bhan’s ability to pick fundamentally sound stocks and understand long-term trends. He puts emphasis on fundamental research when choosing stocks, wherein he looks for issues that have good growth prospects and healthy/rising ROEs. The top-down approach is considered, too.
Bhan’s willingness to take larger exposure to small/mid-caps and be more liberal with the sector bets (than before) could result in the fund delivering a divergent showing versus a typical peer over the short term. For instance, in the upturn of 2012, the larger small/mid-cap exposure aided the fund in featuring among the best performers in the category. Conversely, at the time of writing this report, the fund had underperformed 70% of its peers on a year-to-date basis as of June 2013.
But we draw confidence from the presence of a skilled manager supported by a robust investment team and his research-intensive approach, which we believe can hold the fund in good stead over the long haul. We reiterate the Bronze rating.