2 Bronze rated funds from SBI Mutual Fund

By Kavitha Krishnan |  01-06-21 | 
 
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About the Author
Kavitha Krishnan is a Senior Research Analyst on Morningstar's Fund Research team. She has over 9 years of experience in the Financial Sector. She would like to hear from you, but cannot give financial advice.

SBI Mutual Fund previously offered multiple schemes under the same category. However, this has been streamlined because of SEBI’s recategorization exercise in 2018.

Recently, CIO Navneet Munot resigned from the fund house to join HDFC Mutual Fund as CEO. This, we believe, is a big loss for the fund house. Navneet is an experienced investment professional, and his contribution towards building and stabilizing the team as well as investment processes at SBI are commendable. Clearly, a new CIO has big shoes to fill. It is an important development and needs to be closely monitored.

Here are two funds reviewed by us recently.

SBI Bluechip Fund                                                                                 

  • Star Rating: 4 stars
  • Analyst Rating: Bronze
  • Fund Manager: Sohini Andani
  • Inception: February 2006
  • Return: 63.01% (1 year), 12.16% (3 year), 12.81% (5 year), 14.30% (10 year), 11.70% (since inception). Return of regular plan as on May 31, 2021
  • Morningstar Analyst: Kavitha Krishnan
  • Date of Analysis: May 2021
  • Number of stocks: 54
  • Assets in top 10 holdings: 46%
  • Assets under management: Rs 26,464 Rs crore (April 2021)
  • Investment Style: Large Blend
  • Total Expense Ratio: 1.79% (regular), 0.98% (direct)
  • Fund Overview 

Sohini Andani aims to invest in companies with a relatively high risk/reward ratio. She uses a benchmark-aware approach to investing, with an internal sector limit of 8% and a stock limit of 5% versus the index. The fund’s average market cap is slightly lower than category peers, with most of Andani’s mid-cap stocks falling in the upper end of this segment in terms of market capitalisation.

The AMC differentiates its funds based on absolute and relative-return frameworks. The Bluechip fund is a relative-return strategy focused on finding incremental fundamental change, positive market expectations, and relative valuations, measured by sales growth, Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) margins, and market share changes. They look at firms in terms of their visibility of growth and undertake company visits with a view to evaluate their business models. They have an active universe of stocks that are reviewed quarterly.

While the filters for relative and absolute funds are clearly defined, stocks could fall into either framework, and the differentiation could blur.

The fund has largely maintained an orientation towards growth stocks and is focused on long-term (three- to five-year) visibility. The team tends to stay away from momentum-based ideas and focuses on bottom up stock-picking, which overlooks short-term market aberrations. This could lead to some short-term underperformance. We think their approach towards investing in companies with high ESG scores is a positive measure towards maintaining a “clean” portfolio. The in-house model portfolio forms the basis for stock picks and consists of the analyst team’s best ideas. Valuations are looked at on an absolute basis relative to the stock’s 10-year history. While they avoid event-based investing (possibility of a merger/acquisition), they tend to invest in IPOs.

SBI Focused Fund

  • Star Rating: 4 stars
  • Analyst Rating: Bronze
  • Fund Manager: R Srinivasan
  • Inception: October 2004
  • Return: 59.72% (1 year), 13.83% (3 year), 16.13% (5 year), 17.29% (10 year), 19.65% (since inception). Return of regular plan as on May 31, 2021
  • Date of Analysis: May 2021
  • Number of stocks: 25
  • Assets in top 10 holdings: 46%
  • Assets under management: Rs 14,767 Rs crore (April 2021)
  • Investment Style: Large Blend
  • Total Expense Ratio: 1.90% (regular), 0.76% (direct)
  • Fund Overview 

The strategy is managed by head of equity R. Srinivasan, who is a veteran at the AMC and has been instrumental in the fund house’s turnaround. We remain positive on the team despite the recent departure of Navneet Munot. Some of the obvious positives include the leadership of an experienced stock-picker, the backing of a stable in-house process, and an experienced analyst team that has been trained in-house. We believe Srinivasan has the capability to run this fund efficiently. However, the uniqueness of the strategy brings an element of key-person risk.

The manager focuses on parameters such as Return on Equity (ROE) and Return on Capital Employed (ROCE) to uncover companies that can generate high growth on a sustained basis. The approach has a qualitative overlay; the manager relies on his research bent to uncover competencies such as technological prowess, cost margins, or a brand equity that gives the company an edge.

Srinivasan doesn’t mind investing in richly valued stocks for incremental growth, but he also scouts for value buys, which typically include firms that he believes are trading at a significant discount to their intrinsic value. While stocks like Gland Pharma and Elgi Equipment typify his value bent, stocks like HDFC Bank have continued to remain in the portfolio despite high valuations. He has also invested in a couple of offshore stocks like Microsoft and Alphabet to diversify the portfolio.

Although the fund’s large-cap exposure went up significantly last year, he has brought them down in 2021 (currently around 58% of the fund. Despite the manager’s ability to quickly exit stocks that don’t meet his criteria, there have been instances where he has held on to a stock that has underperformed over the short term based on his conviction levels. This benchmark agnostic approach and concentrated portfolio give the fund a unique flavor. Having said that, the portfolio is not without risks and could underperform in a momentum-driven market.

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SOUMEN DEY
Jun 4 2021 12:45 AM
 Never ceases to amaze me how Morningstar gets it wrong all the time. Atleast one of the above funds deserves the gold rank for its fantastic investment style, but it is bonze. Gold is reserved for superb debt funds from Franklin. I have purposely not mentioned which fund deserves a gold. Morningstar will learn after 3-4 years. Why spoil the fun.
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