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Sundaram BNP Paribas Select Midcap: Flexible tool to handle swings
December 06, 2006
No mutual fund scheme has dominated the past year as Sundaram BNP Paribas Select Midcap. SSM tops our risk-adjusted return charts, both for the past six months and one year. That's not the only reason why we are telling to take a look at SSM. Here's more:
SSM invests in mid-cap companies. Typically, these are growing companies that are in the process of a transformation and undergo extensive restructuring by cutting production costs, trimming work force and improving their product quality.
All this leads to better profits. Since the market does not chase them, they suffer from low liquidity and are more volatile. Over a period of time, consistent performing mid-cap companies are rewarded by better valuations. That's when they become large-caps. "We identify stocks that have the potential of growing more than 50 per cent faster than the Sensex, but trade at lower valuations," says fund manager Anoop Bhaskar.
SSM is well-diversified and does not put more than four per cent of its corpus in any single scrip. Some of its most successful investments have been in Blue Dart, Jubilant Organosys, Bajaj Hindustan and IVRCL. Since May 2006, it has consistently held around 30 per cent in cash. It is this flexibility that bodes well for a mid-cap fund in a turbulent market.
SSM enjoys a formidable track record. Its one-year rolling returns is among the top three, and it is one of two schemes with least downside risk. Despite equity markets being choppy, over the past one year, the scheme's corpus has risen from Rs 344.5 crore (Rs 3.44 billion) to Rs 1,391.7 crore (Rs 13.92 billion). The scheme aims to pay dividends at least twice a year. "Payment of regular dividends out of profits booked in the past is also an integral part of our strategy," says Bhaskar.
Higher risk higher return
Higher returns come along with the inherently high risk nature of the mid-cap selection. Mid-cap stocks are volatile and can expose the portfolio to higher risk. However, SSM has the flexibility to use cash as a tool to counter volatility. Hence, when mid-caps fall, SSM's fall is dampened.
Anoop Bhaskar has almost been synonymous with Sundaram BNP Paribas Select Midcap's success. This fund manager, who has also worked at Franklin Templeton Mutual Fund, is said to be one of the few people on the Street to be in constant touch with the management of companies in which his schemes invest. This bodes well for the investor as the fund manager gets a better perspective and understanding of the companies.
This helps him take informed decisions - buy, hold or sell - the scrip. Bhaskar has also tasted success in Sundaram Tax Saver. How he continues to manage a fund that has grown by 304 per cent in terms of corpus will determine whether the scheme will continue to feature in our selection year after year.