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At Personalfn, we are advocators of investing in time tested funds from fund houses with a solid reputation. We believe that a fund needs to prove its mettle across parameters and market cycles (bull runs and bear phases) and do so consistently before it can be considered for investment.
Similarly the fund house, its approach to fund management and its investment philosophy are also put under the scanner. As a result and much to the dismay of most investors, we often give the new fund offers a miss.
In our view, a new fund offer (NFO) should be considered only if it offers a unique investment proposition which is distinct from existing funds. Also it needs to qualify on all the parameters that we have mentioned before. One of the few NFOs that made the grade in our books was Fidelity Equity Fund (FEF).
Fidelity scored on the diversification parameter at the asset management company (AMC) level. Investors were offered the opportunity to benefit from a unique style of fund management.
Also despite it being Fidelity's maiden fund launch, the fact that it had exposure to Indian stock markets and a research base on Indian companies by virtue of its FII (which had been in operation for over 10 years), ensured that investors were not dealing with a greenhorn.
Secondly, the fund's 'free-flowing' fund management nature implied that it would invest in both 'growth' and 'value' stocks. Also its investment universe would comprise of stocks from across market capitalisations like large cap, mid cap and small cap.
| Diversified Equity Funds | NAV (Rs) | 1-Wk | 1-Mth | 3-Mth | 6-Mth | Since Incep. |
| HDFC [Get Quote] TOP 200 | 73.32 | 2.46% | 10.01% | 16.98% | 34.49% | 33.61% |
| FRANKLIN BLUECHIP | 85.89 | 2.16% | 11.14% | 14.32% | 34.41% | 29.40% |
| FIDELITY EQUITY | 13.55 | 1.36% | 10.07% | 9.21% | 33.00% | 35.12% |
| HSBC EQUITY | 47.78 | 0.52% | 8.46% | 11.07% | 32.01% | 68.94% |
| FRANKLIN PRIMA | 163.1 | 1.35% | 8.20% | 8.94% | 31.13% | 26.21% |
| SUNDARAM MIDCAP | 51.69 | 1.00% | 6.68% | 5.14% | 26.81% | 64.43% |
FEF has been in existence for a little over 6 months and has clocked a growth of 35.12% since inception (May 16, 2005). Over the 6-Mth time frame, the fund has matched some of its illustrious peers as can be seen in the table above.
However, what caught our eye was FEF's impressively diversified portfolio. As on September 30, 2005, the fund held 103 stocks in its portfolio accounting for 93.7% of its assets and the balance (6.3%) in fixed deposits and current assets. With an asset size of Rs 25.4 bn, this is exactly the kind of well-spread stock portfolio one would expect the fund to hold.
A top-heavy stock portfolio can expose a fund to volatility. FEF doesn't disappoint on this front either; its top 10 stock holdings accounted for 32.07% of assets making it a well-diversified one.
We believe a diversified equity fund should hold no more than 40% of its assets in the top 10 stock picks to lower risk of volatility. Furthermore, FEF has been true to its mandate of investing in stocks across market segments.
| Companies | % of net assets |
| ONGC [Get Quote] | 4.94 |
| BHARTI TELEVENTURES | 4.65 |
| FINANCIAL TECH | 3.79 |
| ZEE TELEFILMS | 3.51 |
| RELIANCE INDUSTRIES [Get Quote] | 3.12 |
| BAJAJ AUTO [Get Quote] | 2.55 |
| HINDUSTAN LEVER [Get Quote] | 2.54 |
| GAIL | 2.44 |
| SBI [Get Quote] | 2.40 |
| INDIAN HOTELS | 2.13 |
In terms of sectoral holdings, FEF's top 5 sectors accounted for 49.13% of assets, making the allocation a moderately diversified one. The leading sectors were -- Banks (12.26%), Consumer Products (10.45%), Software (10.43%), Engineering (8.39%) and Energy (7.60%).
For the purpose of computing sectoral holdings, similar natured sectors have been clubbed into a single one. For example, 'Industrial Capital Goods' and 'Industrial Products' are combined under 'Engineering'.
FEF has been in existence for a reasonably short period of time which is not really an ideal time frame to evaluate a diversified equity fund. Also, for a better part of its tenure, the fund has witnessed a strong bull run in equity markets. So it remains to be seen if the fund can sustain its performance over a 3-5 year time frame, which is the ideal investment horizon for an equity-linked instrument.
However in our books the fund's portfolio management style so far does impart credibility to its positioning as a long-term investment proposition.
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