The fund house is witnessing a lot of changes on the people and strategy front. While both are positives and should stabilize over time, we would like to see how they yield a positive return over the medium to long term. Here's our view on three funds.
Sundaram Select Focus
- Category: Large Cap
- Fund Manager: Rahul Baijal
- Star Rating: 3 stars
- Analyst Rating: Neutral. A recent manager change and an internal restructuring restrict our conviction level.
- Investment Style: Large Growth. The fund has a significant bias to large caps.
- Investment Process: The fund runs a slightly concentrated approach with a meaningful investment in 2/3 sectors.
This is an aggressive fund that focuses on few themes.
The fund uses a combination of top-down sector selection and bottom-up stock selection to generate alpha. The stocks represent the manager’s highest-conviction picks based on three or four themes.
Given its concentrated approach, the fund can deviate significantly on the sector and stock weights. Initially, the portfolio composed of roughly 30 stocks. The strategy was then modified to go up to 50 stocks, with sector weights broadly in line with the index.
The number of holdings has come down to around 40 in 2016. The fund is likely to maintain around 30-35 stocks going forward, based on its investment strategy.
The fund’s broad approach oscillates depending on market conditions. In testing market conditions, the manager followed a diffused approach, with the exposure to sectors being broadly aligned with the benchmark. In positive markets, he plies a relatively concentrated approach, taking thematic bets based on a top-down analysis.
An error of judgment on either sector or stock positions could lead to substantial underperformance with such a strategy. Rahul Baijal started managing this fund in October 2016. Given his short track record, we would like to evaluate the performance of the fund once it has remained under his lead for a considerable period of time.
You can read the brief analyst note here
Sundaram Select Mid Cap
- Category: Small/Mid Cap
- Fund Manager: S. Krishnakumar
- Star Rating: 4 stars
- Analyst Rating: Bronze. We have a positive view on the fund and believe that the investment process should hold the fund in good stead over the long term.
- Investment Style: Mid Growth. A well-defined process, aimed at constructing a growth-oriented, long-term portfolio of stocks.
- Investment Process: The portfolio is based on high-conviction ideas and can be sector-heavy.
The fund manager invests in stocks that tend to exhibit growth characteristics over a 3- to 5- year investment horizon. The investment process is essentially bottom-up and primarily driven by fundamentals, though the fund house has a fairly strong thematic undercurrent that can tend to influence sector selection.
This fund has been putting up some good numbers and its 3-, 5- and 10-year annualized performance numbers are ahead of the category average. We think that the manager’s stock-selection process is one of the major sources of alpha generation on this fund. The manager views that investing outside the benchmark yields a better active return than blindly investing in benchmark stocks.
This fund has historically held a lower allocation towards large caps compared to its category peers. This has changed over the past year with the allocation rising, though the major portion of the portfolio is in small- and mid-cap stocks.
Krishnakumar (CIO of equities) is a proficient portfolio manager and has been managing this fund since 2012. He joined the AMC in December 2003 as equity research head before moving into fund management in 2006.
You can read the brief analyst note here
Sundaram Tax Saver
- Category: Equity Linked Savings Scheme (ELSS)
- Fund Manager: S. Krishnakumar
- Star Rating: 3 stars
- Analyst Rating: Neutral.
- Investment Style: Large Growth. The fund follows a multi-cap strategy that can tend to vary its exposure across market caps.
- Investment Process: A well-defined process aimed at constructing a growth-oriented portfolio of high-conviction ideas.
The fund adopts a multi-cap strategy. The exposure of mid-caps in the portfolio is currently at around 30%-40% and can change significantly based on the availability of ideas and investment avenues that are in line with the fund’s strategy. Managers take lower issue-specific risks, with individual stocks rarely accounting for more than 5% of the portfolio and the top 10 stocks accounting for roughly 33% of the total assets.
The portfolio is slightly concentrated at a sector level and can tend to deviate significantly as compared with the fund’s benchmark weights.
Last year the fund beat the category average (4.46%) with a return of 6.84% after 3 consecutive years of underperformance.
Krishnakumar (CIO of equities) has been managing this fund since April 2015. He joined the AMC in December 2003 as equity research head before moving into fund management in 2006.
You can read the brief analyst note here
