Management
Satish Ramanathan, head of equity and portfolio manager, is managing Sundaram BNP Paribas Tax Saver since September 2007. Prior to Sundaram Mutual, Ramanathan was associated with Franklin Templeton Mutual Fund and ICICI Securities in their equity research and fund management units. He has overall 16 years of industry experience.
The portfolio manager is a strong stock picker in the mid- and small cap space and therefore we think the fund house has assigned him responsibilities for managing its mid and small cap funds. Currently, he manages Sundaram BNP Paribas Select Mid-Cap, Sundaram BNP Paribas Equity Multiplier and Sundaram Select Small-Cap.
Strategy
This is an aggressively managed tax saving fund. The fund has a large-cap orientation with a growth bias, however, it seeks to invest across market caps. Currently, the fund features in the Large Blend quadrant in the Morningstar nine-grid investment style box. The portfolio manager strives to invest in stock with a three-five year perspective and primarily looks at macro/micro economic themes, which would benefit sectors and industries and then companies.
The portfolio manager follows bottom-up investment approach and would like to invest in high growth stocks. No doubt, the portfolio’s beta is on the higher side (0.98), though in line with category average of 0.99, during the last three-year period as of July 2009. The fund would limit its exposure to a single stock up to 5% of its portfolio and would look at various valuation parameters such as Return on Equity (ROE), earnings growth, stock’s imbedded value, etc., as stock selection criteria.
The portfolio manager cut the fund’s cash exposure, which was as high as 36% in November 2008, from 27% in March 2009 to just 5% in July 2009. He prefers energy, financial services and automobile sectors currently, which has 26%, 16% and 9% exposure in the fund’s portfolio as of July 2009.
The portfolio manager believes the energy companies would benefit from high pricing power, owing to huge energy deficit in the country. The financial services companies, particularly banks would benefit from capital deficit in the country and large lending institutions would benefit from it. The fund increased exposure to the automobile sector, owing to increased consumption amid poor infrastructure and transport systems, which has led to rise in demand for automobiles.
Costs
The fund has successfully managed to keep its expenses lower than its peers. Its expense ratio, as per its recent annual report, was at 2.25%, lower than its category average of 2.32%.
Performance
The fund registered strong performance across investment horizons, particularly in long run. Since inception (November 1999), the fund posted 22.8% annualized return, as compared to its benchmark return of 14.3%, as of July 2009. Its performance across one-, three- and five-year investment periods also showed strong outperformance vis-à-vis its benchmark. We would have liked if the fund’s performance were consistent across calendar years, however, the fund was either featured in first or second quartile except in 2003 when its performance was dipped and it was featured in the third quartile.
Though, we would not like to look at a fund’s performance during the short term, however, it is worth to note here that during the YTD period to July 2009, the Fund’s performance was impacted, primarily because of its higher cash levels in March (when equity market shot up) and its investments in Satyam Computer Services, which was caught in a financial scandal by its promoters. The fund featured in the bottom quartile, during the YTD period.
In terms of risk, the fund was relatively on the higher risk side as compared to its peers, which could be because of its mid- and small-cap allocations. The fund’s standard deviation, during the last three-year period was at 35.6%, marginally lower than 36.1% for the category average. However, its risk-adjusted performance was the best among its peers, as measured by the Sortino Ratio. Since, the portfolio manager aggressively managed this fund, its turnover ratio is higher at 296% as of July 2009.
Overall, the fund was able to do well in up markets and also in down markets conditions as reflected by its up capture and down capture ratios of 108% and 89% respectively.
Stewardship
The portfolio manager do not have investments in this fund, owing to cap of 100,000 rupees and lock-in period, however, he has investments in the mid-cap funds, which he manages.
Conclusion
This fund is an appropriate investment proposition for investor looking for an aggressively managed tax saving fund and would not mind taking a bit more risk.
