Sundaram Equity Multiplier Fund

Despite being a closed-ended fund, Sundaram Equity Multiplier's performance during the closed-ended period has not really been noteworthy

 

FOR equity mutual funds, the year 2007 was probably one of the best times for a launch. Many schemes, especially in the mid and small-cap category, which were launched in that year, rewarded their investors with handsome gains. However, not many have succeeded in maintaining the momentum in the following years.

   Sundaram Equity Multiplier is one such plan, which after a flamboyant start in 2007, has been struggling to regain the pace since then. Initially, a closed-ended fund with a lock-in period for three years, the fund is now open for subscriptions by all and sundry.

PERFORMANCE:

If one were to summarise Sundaram Equity Multiplier's performance since its launch, it can be described as below par. Thanks to its high exposure to mid-cap stocks, it has comfortably beaten the broader market indices like the Sensex and the Nifty, but has failed to beat its benchmark index – the CNX Midcap.

   Since its inception in January2007, Sundaram Equity Multiplier has given about 38.5% absolute returns as against 63.6% returns by the CNX Midcap. The Sensex and the Nifty have returned about 35% and 40%, respectively during this period. Year-wise break-up of fund's performance report shows that after generating more than 82% returns in 2007 against CNX Midcap's 89%, the fund value feel fell by about 56% during the market meltdown of 2008. The CNX Midcap had fallen off by about 59% then. Unfortunately, the fund has found it difficult to recoup the losses in 2009 and was beaten not only by the CNX Midcap, but also by the Sensex and the Nifty.

   As against 99% returns by the CNX Midcap, 81% returns by the Sensex and about 76% returns by Nifty, Sundaram Equity Multiplier managed to return just about 68% — much lower than even the average returns of over 84% by the category of diversified equity schemes.

   In the current year, when the fund has been converted into an open-ended scheme, it returns of about 2% since January continue to trail its benchmark CNX Midcap's returns of 7%.

PORTFOLIO:

The fund's portfolio clearly reflects an aggressive investment strategy and carries a high beta of 1.07. A beta is a measure of volatility of the fund's portfolio vis-à-vis that of the market. Thus a beta of 1.07 indicates that the portfolio is 7% more volatile than the markets.

   Sundaram Equity Multiplier's aggressive investment strategy is evident from the fact that despite a high exposure in the midcap space, the fund has concentrated diversification with less than 30 stocks in the portfolio. This increases its exposure and thereby the risk per stock considerably. For instance, its top five stock holdings alone account for nearly 30% of its equity composition. And while the fund has attempted to extensively diversify itself across sectors, its top two sectors – namely financials and energy alone account for more than 36% exposure.

   As far as the stock selection is concerned, the fund is quite active in churning its portfolio and most of its current holdings have been invested into in 2009. On an overall basis, 60% of the fund's current equity portfolio is currently quoting a price higher than their purchase price. Stocks that have failed to live up to the fund manager's expectations include Gammon India, Religare Enterprises, 3i Infotech and Aban Offshore among others. Recently, the fund has invested into Bajaj Finserv, JSW Energy and Persistent Systems.

OUR VIEW:

Despite being a closedended fund, where the fund manager has the leeway to manage the fund without much redemption pressure, Sundaram Equity Multiplier's performance during the close ended period has not really been noteworthy. It will, however, be interesting to see if the fund can make any turnaround in its performance now that it is open ended.

 
   Moreover, given the fund's aggressiveness and high-risk appetite, conservative investors would as such do well to abstain from investing in this fund. For those seeking to invest in the mid and small-cap space, there are many better offerings in the market currently, some from the Sundaram basket as well.