Mirae Asset Emerging Blue Chip Fund

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Mirae Asset Emerging BlueChip Fund

Mirae Asset Emerging Blue Chip Fund is a mid-cap growth fund with assets under management of Rs 127.57 crore. The fund is benchmarked against the CNX Midcap Index. It was started in June 2010.

Investment criteria and process

The fund invests primarily in securities of companies that are not part of the top 100 stocks by market capitalisation but have a market capitalisation of at least Rs 100 crore at the time of investment. At any given point of time at least 65 per cent of the fund's portfolio must be invested in equities. Says Neelesh Surana, the fund manager: "This is primarily a mid-cap fund that gives investors the opportunity to participate in the growth of emerging companies that have the potential to become tomorrow's large caps. "The fund's mandate allows the fund manager to invest up to 35 per cent in derivatives, money market instruments, securitised debt, or other equity categories.

Regarding the fund's investment approach, Surana says: "We focus on companies with attractive valuations through bottom-up analysis. Our strategy is to invest in high-quality businesses, i.e. those that have superior return ratios, growth profiles, and are run by top-notch management. To contain risk the fund's portfolio is diversified across a number of sectors."

Fund performance

Over the last one year (ended January 31, 2013) the fund is up 28.58 per cent, ahead of its benchmark, the CNX Midcap, by a margin of 10.79 percentage points.

	Scheme Name		1 Year		YTD		Since Inception
Mirae Asset Emerging BlueChip-Reg(G)		28.58		-0.82		13.32
CNX Midcap		17.79		-1.66		0.29

January 31, 201; all figures in %

The fund was launched in 2010 and has outperformed the benchmark index over different time horizons like YTD and one-year. Since inception the fund has outperformed its benchmark index by more than 13 percentage points.

Next, let us examine the fund's calendar year-wise performance to see if it has been consistent.

	Scheme Name		2011		2012
Mirae Asset Emerging BlueChip-Reg(G)		-15.15		45.56
CNX Midcap		-31.00		39.16

All figures in %

The fund has beaten its benchmark in both 2011 and 2012 by margins of 15.85 and 6.41 percentage points respectively. The fund provided sound downside protection to its investors in the declining market of 2011.

Though the fund has the mandate to invest in derivatives, in keeping with the AMC's global practice, the fund manager does not invest or even hedge existing positions via derivatives.

Portfolio characteristics

Number of equity holdings. The fund currently holds 57 stocks in its portfolio (January 31, 2013), which is much higher than the median stock count for the diversified-equity category, which currently stands at 41. Thus, based on equity count the fund runs a diversified portfolio compared to its peer set.

Over the past two years, the fund has always had a diversified portfolio with the number of equity holdings averaging 49.58.

Sector concentration. The fund's concentration in the top three, five and 10 sectors is lower than the median for the diversified-equity category.

	Sector Holdings		Top 3		Top 5		Top 10
Mirae Asset Emerging BlueChip-Reg(G)		32.01		42.45		57.93
Median - Equity Diversified		34.30		47.59		68.53

Company concentration.

The fund's concentration is way below the median for the diversified-equity category in the top three, five and 10 sectors.

	Concentration-Company		Top 3		Top 5		Top 10
Mirae Asset Emerging BlueChip-Reg(G)		12.59		18.91		32.93
Median - Equity Diversified		18.43		28.26		45.52

Thus, based on criteria such as equity count, sector concentration and company concentration, one can conclude that the fund runs a well-diversified portfolio.

Turnover ratio. According to its last disclosure (January 2013), the fund had a turnover ratio of 86 per cent. This was higher than the average of 73.87 per cent for the diversified-equity category during the same period. Its average turnover ratio in 2012 was 98.41 per cent.

The fund's turnover ratio tends to be slightly higher compared to the peer set.

Expense ratio. The fund has an expense ratio of 2.50 per cent. This is almost at par (just 3 basis points lower) than the median (2.53 per cent) for the diversified-equity category.

Exit load: The fund has an exit load of 2 per cent for redemption within 182 days and 1 per cent for redemption between 183-365 days. Most funds in the equity category have a flat exit load of 1 per cent till 365 days.

Considering that the fund invests in the volatile mid-cap space, one would like to reiterate that investors must invest in mid caps for the long term.

Cash allocation. Its cash allocation at the end of January 2013 was 4.08 per cent. The fund has had an average cash allocation of 4.46 per cent over the last two years. Its maximum allocation to cash over this period was 10.80 per cent in February 2011 and lowest was 1.73 per cent in December 2011. In 2012 it had an average cash allocation of 3.49 per cent. Thus on the whole the fund maintains low allocation to cash.

The fund manager believes that since the investor has invested in the fund to participate in equities, it would be in his best interest if the fund remains invested to the maximum limit.

Risk measures. The fund's beta and standard deviation are both lower than the median for the diversified-equity category, which indicates that it belongs to the less risky half of the diversified-equity category.

			Standard Deviation		Beta
Mirae Asset Emerging BlueChip-Reg(G)		0.89		0.68
Median - diversified-equity funds		0.94		0.81

Risk-adjusted returns. On measures of risk-adjusted return such as Sharpe ratio and Treynor ratio, the fund fares better than the median for the diversified-equity category.

			Treynor		Sharpe
Mirae Asset Emerging BlueChip-Reg(G)		0.05		0.05
Median - diversified-equity category		0.03		0.03

Portfolio strategy

Over the last one year (ending January 31, 2013) the BSE Sensex rose 15.71 per cent, the BSE Midcap Index rose 18.71 per cent and the BSE Small-cap Index rose 9.44 per cent. During this period the fund rose 28.58 per cent and was ahead of its benchmark (CNX Midcap) by 10.79 percentage points.

Over the last one year its exposure to cash fluctuated between 2.16 per cent and 7.45 per cent. The average cash held during this period was 3.46 per cent. It has had no exposure to derivatives so far in its portfolio.

The best-performing indexes over the last one-year period ending January 31, 2012 were BSE FMCG (45.34), BSE Consumer Durables (28.36), BSE Realty (31.06), BSE Bankex (28.00) and so on.

	Sector Name		Feb 2012 (%)		Jan 2013 (%)		Raised/lowered allocation (%)
Bank – Private		8.61		13.23		4.62
Auto Ancillary		5.88		8.06		2.18
Household & Personal Products		2.08		3.56		1.48
TV Broadcasting & Software Production		2.44		3.17		0.73
IT - Software		2.68		3.29		0.61
Pharmaceuticals & Drugs		10.18		10.72		0.54
Bank – Public		6.36		6.88		0.52
Logistics		3.48		3.07		-0.41
Cement & Construction Materials		3.96		2.92		-1.04
Consumer Food		4.45		3.03		-1.42

Over the last one year the fund has raised its allocation to sectors like private banks, auto ancillary, household and personal products, and so on. Among its top 10 holdings, it has reduced its exposure to consumer food, cement and construction material and logistics.

	Sector Name		Fund (%)		CNX Midcap (%)		Over/underweight vis-à-vis index (%age pts.)
Bank – Private		13.23		5.36		7.87
Auto Ancillary		8.06		1.72		6.34
Logistics		3.07				3.07
TV Broadcasting & Software Production		3.17		2.09		1.08
Consumer Food		3.03		2.03		1.00
Pharmaceuticals & Drugs		10.72		11.11		-0.39
Cement & Construction Materials		2.92		3.61		-0.69
Bank – Public		6.88		8.64		-1.76
IT - Software		3.29		5.47		-2.18
Household & Personal Products		3.56		5.98		-2.42

Figures are for January 2013

By the end of January 2013 the fund was overweight vis-a-vis its benchmark on private banks, auto ancillary, TV broadcasting and so on. The sectors on which it was underweight vis-a-vis its benchmark were household and personal products, software, public banks, and so on.

Next, let us turn to the fund's stock allocations.

	Company Name		Feb 2012 (%)		Jan 2013 (%)		Raised/lowered allocation (%)
ING Vysya Bank Ltd.				3.22		3.22
ICICI Bank Ltd.		2.38		3.96		1.58
Zee Entertainment Enterprises Ltd.		1.82		3.02		1.20
Gujarat Mineral Devp. Corpn. Ltd.		1.50		2.67		1.17
Federal Bank Ltd.		3.64		4.39		0.75
Ipca Laboratories Ltd.		2.37		3.10		0.73
Amara Raja Batteries Ltd.		3.56		4.24		0.68
Gateway Distriparks Ltd.		3.48		3.07		-0.41
DiviS Laboratories Ltd.		3.12		2.70		-0.42
Bank Of Baroda		3.12		2.56		-0.56

During this period the fund raised its allocation to stocks like ING Vysya Bank, ICICI Bank, Zee Entertainment, and so on (see table above). Among its top 10 holdings it lowered its allocation to stocks like Bank of Baroda, DiviS Laboratories, and Gateway Distriparks.

	Sector Name		Fund (%)		CNX Midcap (%)		Over/underweight vis-à-vis index (%age pts.)
Federal Bank Ltd.		4.39				4.39
Amara Raja Batteries Ltd.		4.24				4.24
ICICI Bank Ltd.		3.96				3.96
Ipca Laboratories Ltd.		3.10				3.10
Gateway Distriparks Ltd.		3.07				3.07
Zee Entertainment Enterprises Ltd.		3.02				3.02
Gujarat Mineral Devp. Corpn. Ltd.		2.67				2.67
Bank Of Baroda		2.56				2.56
ING Vysya Bank Ltd.		3.22		1.63		1.59
DiviS Laboratories Ltd.		2.70		2.20		0.50

January 2013

By the end of January 2013 the fund had large allocations to eight stocks that are not part of the benchmark index, such as Federal Bank, Amara Raja Batteries, ICICI Bank and so on. Against the index the fund was overweight on ING Vysya Bank and DiviS Laboratories.

Fund manager

Neelesh Surana is the sole fund manager for this scheme. He has over 17 years of experience (including five years with Mirae Asset AMC) in the financial services industry (including fund management). He has also worked for ASK Investment Managers. He also co-manages Mirae Asset India-China Consumption Fund and Mirae Asset India Opportunities Fund with Gopal Agrawal.

Earlier this fund was also co-managed by Agrawal and Surana. Both were managers since inception (May 2010).

Conclusion

In its short duration of existence the fund has seen a bear and a bull phase, and has out-performed in both. Its philosophy of being fully invested and the focus on quality stocks has enabled it to do well over the last two calendar years. Besides the fund's performance, an experienced fund management team is also a point in the fund's favour.

The fund's small AUM could be a disadvantage in case of large redemptions (forcing the fund manager to sell some of his best holdings).

Mirae Asset Emerging Bluechip may be considered for portfolios with long investment horizons.

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