Saturday, September 12, 2009

Electrifying Prospect


In 2007, with a return of 124.42 per cent, it truly impressed. But in all fairness, it is a sector fund and the relevant stocks were trading at a significant premium to their earnings.

Since the fund's fortunes are restricted to those of the sector, a slump could badly hit the fund. But the fund's mandate allows it to invest in energy, power, financial institutions and banks engaged in funding power projects, as well as any company associated in some way or the other with the power sector. Besides this broad base, the fund manager is not restricted in terms of market capitalisation or asset class. He has the leeway to be fully invested in fixed income securities (of companies that fall within the mandate) or even cash.

So, while one can expect anything, the fund manager has worked hard to mitigate the danger. Towards the end of 2007, the fund began to take on a large-cap tilt and also increased the number of stocks to around 27. Simultaneously, the allocation to the top five holdings has drastically reduced from an average of 43 per cent in 2006 to around 20 per cent, end 2008.

This diversification, coupled with an increased cash allocation helped it get away with a modest fall of 50 per cent in the market crash last year. However, in the recent run-up from March 9-June 30 2009, the fund has gained an impressive 76.52 per cent.

The fund manager has a tough job partly because he is managing a sector fund and partly because of the large asset base - this is the largest equity fund. But he has delivered admirably, has taken the risks into consideration and looks well poised to capitalize on power sector reforms in the future.