This pointed question was posed to us by a reader based on his view that the fund’s performance has been decidedly lackluster lately. In the 9 years spanning 2004 to 2012, DSP BlackRock Top 100 Equity either matched the category average or beat it. In fact, the fund received the Morningstar Fund Award in 2009 for its superior performance. It now appears that the fund’s streak of beating the pack seems to have ended.
Having said that, it would be a mistake to kick this one to the kerb. For one, there have been no changes in the helm that should scare off investors. The pedigree of the fund house remains intact. The fund continues to be managed by Apoorva Shah who has proved his mettle as a great fund manager. And, the scheme’s mandate remains unchanged.
The fund’s performance was handicapped due to a wrong macro call. At the start of 2013, the fund house prematurely assumed economic recovery. The fiscal deficit issue, the U.S. tapering scare, the rupee in a freefall and the collapse of sentiment threw a spanner in the works. A portfolio underweight on defensives and tilted towards cyclicals would naturally get hit. It then took a while to reshuffle the portfolio due to tightness in liquidity (taking into account the size of the portfolio).
This year, it has been mid caps that have grabbed the spotlight. So as and when large caps catch up, the fund should reassert itself.
At this point, it is worth mentioning that relative to its other large-cap peers, the fund has not put its best foot forward. In the current year-to-date returns, the fund is lagging behind the category average.
This could be due to the fact that Shah offers a large-cap oriented portfolio with barely any room, if at all, for smaller fare. A look at the October 2014 portfolio reveals a 100% allocation to giant and large-caps. The category average to such exposure is 87%. Moreover, he restricts his investment universe only to the top 100 scrips by market capitalization.
That does not imply that Shah blindly adheres to the fund’s benchmark, the S&P BSE 100. A top holding in the benchmark may not have much significance in his portfolio and many of the stocks that form part of the index may not be favoured by him.
What Shah does is play around with his portfolio and the fund’s high turnover ratio bears this out. In October 2014, it was 235%, though significantly lower from 277% (March 2011). With such a heavy-large cap orientation, he aggressively trades to take advantage of volatility in prices. To read a brief analysis of the fund, click here.
Taking a long-term view, the fund is still a solid offering. Its 10-year return is an annualised 19.77%, which does beat the category average.
Don’t fixate on how the fund, or any fund for that matter, performed relative to its peers over the short term or in one single calendar year. Even the best of funds don't dazzle each and every year.
In all, DSP BlackRock Top 100 Equity is a keeper and remains an attractive option.
