Investors with a high-risk appetite can consider buying in to units of Fidelity India Special Situations Fund. Our recommendation is underpinned by the fund’s adhered focus on investing in undervalued companies, with the key theme being selecting stocks that are out of favour or in special situations such as mergers, turnarounds and takeovers. However, the fund’s return will be highly dependent on the hit rate of each of those companies in ‘special situations’. This poses a higher risk than regular diversified funds.
As equity valuations have fallen significantly in recent times, leaving the stage ripe for the fund’s themes, an investment now could be a good entry point.
But given the fund’s contrarian and value-based approach, it may best serve as a good portfolio diversifier, as it may not be able to ape the returns of some of the large-cap-oriented diversified equity funds. And given the fund’s mandate to stick to ‘offbeat’ stock-picking strategy, it may also call for investors to have at least a three-year investment horizon, by which time the fund’s sector and stock bets may begin to yield returns.
Performance: Despite a prolific start in 2006, the prolonged fall in equities this year has pulled returns into negative territory. It has returned a negative 14.6 per cent since its launch, while its benchmark, the BSE 200, declined by 11 per cent in the same period.
But the fund’s one-year returns have been little better than its benchmark. It shed 52 per cent of its NAV during the period, mildly outperforming the BSE 200’s negative 54 per cent. This marginally superior performance can be explained by the fund’s portfolio, which mainly sports stocks of companies that hold either the ‘defensive’ or ‘value’ tag.
In addition, the fund’s disciplined stock-picking strategy, highlighted by the fact that despite the mayhem in the market it stuck to its sector, may also explain its performance. It has also bettered the benchmark even in the six-month and three-month time period.
Portfolio: The fund has throughout this year maintained its high aggregate exposure to sectors such as banks, software and pharmaceuticals. True to its mandate, the fund’s exposure to the otherwise favoured sectors such as capital goods and engineering has been quite low.
Large-cap stocks (of market capitalisation more than Rs 7,500 crore) currently account for over half of its portfolio value, while mid- and small-cap stocks make up 13 per cent and 27 per cent respectively. Further, its equity portfolio boasts many value and defensive picks.
Be it a high exposure to stocks such as SBI, Satyam Computers, ICICI Bank and Sun Pharmaceuticals or its 6 per cent exposure to the National Stock Exchange, the fund’s overall portfolio appears to leave sufficient scope for value-unlocking in the long-term.
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