Looking for low risk in midcaps? Pick JPMorgan Smaller Cos

Mutual Funds | admin | October 13, 2011 at 8:04 am

The JPMorgan Smaller Companies Fund is a fund that is meant for investors who are looking for a lower risk while taking a mid cap exposure in their portfolio. On analysis, Arnav Pandya finds that the presence of large caps in the portfolio reduces risk but at the same time also drags down the fund in comparison to its benchmark and other pure mid and small cap funds when stocks in these categories are doing better.

Nature: Equity Oriented Open Ended

Assets under Management: 173 crore at the end of July 2011

Inception: November 2007

Fund Manager: Nandkumar Surti, Namdev Chougule, Amit Gadgil, Harshad Patwardhan

Analysis

• This is a fund that focuses on small and mid cap companies and the fund has maintained a high number of stocks in its portfolio. It had 63 stocks in its portfolio at the end of February 2009 and the highest exposure was to the industrials/infra space followed by financials and oil and gas. In terms of the individual top holdings HPCL had an exposure of over 4 per cent followed by Union Bank, Exide, Lupin and Divis Labs. At this point of time the fund was underperforming the benchmark CNX Midcap index both over the one year time period and since its inception. What was significant was that 17 per cent of the portfolio was in cash and other areas. In fact what is notable is that the fund has separate fund managers for both debt and equity even though the fund would be classified as an equity diversified fund.

• At the end of July 2009 financials edged out the industrials/infra sector to the top spot in the sector holdings. These were followed by pharmaceuticals and consumer. There was a complete change in the top holdings of the fund as now Sesa Goa was at the top followed by Ultratech Cement, Shree Cement, Crompton Greaves and Mphasis. The fund continued to underperform since its inception and it had around 23 per cent of its portfolio in large caps at this point of time.

• By January 2010 the cash and debt holdings in the fund had come down to 5 per cent and industrials & infra had once again climbed to the top spot in terms of sector holdings. This was followed by financials and consumer. The turnover ratio of the equity investments in the fund had held steady at around 1 level. In terms of the top holdings Shriram Transport Finance was at the top followed by Torrent Power, Crompton Greaves, Aurobindo Pharma and Bank of Baroda. Even though the returns rebounded significantly in absolute terms the fund remained an underperformer against its benchmark since its inception and also for the one year time period.

• There was a slight concentration in terms of sectors as the holdings in the top sector industrials/infra went up to 23 per cent followed by financials and consumer at the end of July 2010. The total number of stocks in the portfolio fell below 60. The top holdings of the fund were Shriram Transport Finance, Exide, Lupin, Eicher Motors and Torrent power and the fund was now an outperformer over the one year time period.

• The highest exposure of the fund remained to the industrials/infra sector at 20 per cent at the end of January 2011. This was followed by financials and pharma. On the individual holdings side Asian Paints was now the top holding followed by Cummins, Lupin, Shriram Transport Finance and Glaxo SmithKline Consumer Healthcare. The fund continued to remain an outperformer only over the one year time period but had still failed to pull back on the longer time period charts.

• By the end of July 2011 there was a change in the portfolio that saw pharma jump to the top of the exposure charts followed by financials. In terms of the top stocks it was Lupin with the highest exposure followed by PFC, Glaxo SmithKline Consumer Healthcare, Yes Bank and Titan Industries. Large caps were 20 per cent of the portfolio and it was outperforming on the one year charts but not the three years one.

• This is a fund that is meant for investors who are looking for a lower risk while taking a mid cap exposure in their portfolio. Aggressive investors looking to gain from mid and small caps will find that the presence of large caps in the portfolio reduces risk but at the same time also drags down the fund in comparison to its benchmark and other pure mid and small cap funds when stocks in these categories are doing better.

Source: moneycontrol.com

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