Tata Equity Opportunities Fund

Year after year, Tata Equity Opportunities has always been an outperformer. Its return of 48.77 per cent per annum since launch (as on August 31, 2008) bears testimony to that. The bull phase (June 15, 2006 to January 8, 2008) has seen the fund return 83 per cent in comparison to the category average of 70 per cent. But in the bear phase that followed (January 8, 2008 to July 15, 2008), the fund did not fall too hard and was in tune with the average, shedding 43 per cent against -42 per cent of the category average.

While the fund tends to stay almost fully invested in equity, ever since the market crashed in January 2008, there has been an increase in cash levels. This should be expected since it has the leeway to invest up to 100 per cent of its assets in money market instruments on defensive considerations.

While the fund has not fully availed of this opportunity, in the six months leading to July 2008, the average cash holding has been 13.53 per cent, going up to 15 per cent in March and June. Even then, it was not insulated from the fall.

Where aggression is witnessed is in the churning of the portfolio. The fund manager gets in and out of stocks quite frequently with 32 of them making an appearance for just three months or less. His favourite picks include Crompton Greaves, Bharat Bijli, L&T and BHEL.

Its performance last year of 76.36 per cent, as against the category average of 59.52 per cent, could probably be attributed to smart sector allocations. Financial services and basic-engineering stocks began to gain prominence in the portfolio last year.

Between July 2007 and March 2008, the fund pruned its exposure to computer software stocks. During this time (July 1 - March 31), the BSE IT index fell by 27 per cent.

What’s prominent about this portfolio is an allocation of 40 per cent to large caps. This, coupled with the large number of stocks held across various sectors, makes it a safer option compared to other mid-cap offerings.

Though the average portfolio now comprises around 50 stocks, down from 69 (February 2007), there has been a discernible change in the weight of the top five holdings. During the initial days (2003), its allocation to the top five holdings stood at 32 per cent. Last year, the top five holdings, on an average, accounted for 21.21 per cent. This year it has averaged at a much lower 16.48 per cent.

Valueresearch