2 Bronze rated funds from SBI Mutual Fund

By Kavitha Krishnan |  22-06-21 | 
 
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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.

From being termed a star performer during the period 2004-07 to being shunned by investors during the 2008-12 periods, SBI Mutual Fund has witnessed several ups and downs. Several measures have been put into place since 2009 to develop and retain talent, structure in-house processes, and bring greater transparency within the AMC. We have witnessed these efforts translate into greater consistency in terms of the overall process that are plied across the fund house.

The fund house has worked on bringing experienced people and creating a conducive corporate culture, focusing on integrity, teamwork, and performance. Further, the process underwent a significant change under Navneet Munot—similar schemes were merged, and existing funds were differentiated with strict adherence to their individual mandates. 

Here are two funds reviewed by us recently.

SBI Focused Equity Fund

  • Category: Focused
  • Star Rating: 4 stars
  • Analyst Rating: Bronze
  • Fund Manager: R. Srinivasan
  • Inception: October 11, 2004
  • Return: 53.06% (1 year), 16.03% (3 year), 16.88% (5 year), 17.49% (10 year), 19.78% (since inception). Return of regular plan as on June 21, 2021.
  • Date of Analysis: May 2021
  • Number of stocks: 26
  • Assets in top 10 holdings: 48%
  • Assets under management: Rs 15,879 crore (May 2021)
  • Investment Style: Large Growth
  • Total Expense Ratio: 1.90% (regular), 0.76% (direct)
  • Fund Overview

The strategy is managed by the head of equity R. Srinivasan, who is a veteran at the AMC and has been instrumental in the fund house’s turnaround.

The manager focuses on parameters such as ROE and 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 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.

SBI Bluechip Fund 

  • Category: Large Cap
  • Star Rating: 4 stars
  • Analyst Rating: Bronze
  • Fund Manager: Sohini Andani
  • Inception: February 14, 2006
  • Return: 55.85% (1 year), 12.86% (3 year), 12.79% (5 year), 14.89% (10 year), 11.70% (since inception). Return of regular plan as on June 21, 2021.
  • Date of Analysis: May 2021
  • Number of stocks: 54
  • Assets in top 10 holdings: 47%
  • Assets under management: Rs 28,211 crore (May 2021)
  • Investment Style: Large Blend
  • Total Expense Ratio: 1.79% (regular), 0.98% (direct)
  • Fund Overview 

We think that Sohini Andani has the capability to deliver consistent returns over the long term and this holds the fund in good stead.

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, 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.

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