RELIANCE REGULAR SAVINGS EQUITY FUND

Quick To Grab Chances
Having performed well in the troubled markets, the aggressively managed Reliance RSF-Equity is ready for an encore.
Despite being India’s largest fund house, Reliance mutual fund (MF) was conspicuously absent from the equity-diversified category, up till now. Its two most successful broad-based equity schemes were in the large-cap (Reliance Vision; RV) and mid-cap (Reliance Growth; RG) space, apart from a couple of well-performing sectoral schemes. But that’s changed now and Reliance RSF-Equity, which recently completed three years and is the latest addition in Outlook Money’s fund selection OLM 50, is an option that warrants your attention.

The scheme. Reliance RSF-Equity (RRSFE) is a diversified equity scheme that invests across all market capitalisations. Like RV and RG, this scheme is opportunistic and is quick to get in and out of companies. The scheme is benchmarked against BSE 100 index. Like all Reliance MF equity schemes, this one too uses cash aggressively. As per the October-end portfolio, 30 per cent of its corpus is in cash.

Returns. RRSFE has performed well over a longer period of time. In our latest fund rankings (The New OLM 50, 19 November) RRSFE is one of the toppers in the diversified equity category. Despite being aggressively managed, it kept its volatility in check and was among the least volatile in its category.

To check the scheme’s consistency, we looked at its rolling returns; an average of one-year returns over a three-year time period. With returns of 38.3 per cent, it topped the charts here too. Thanks to its aggressive management and its ability to pick the right mid- and small-cap scrips, RRSFE outperformed the category in 2007 with returns of 92.29 per cent against a category average of 57.24 per cent.

One of the reasons behind its performance is its corpus size. Although a small size is not as big a hindrance to a diversified equity scheme as it is to a typical mid-cap scheme, it does help as the fund manager can take small exposures in smaller-sized companies and still make a difference. At Rs 576.1 crore (the scheme’s current size), we feel it can continue its good performance over a longer period of time.

Portfolio. RRSFE prefers to maintain a crisp and tight portfolio in times when the fund manager feels that the markets would move in one direction, either up or down; it has consistently held 25 to 30 scrips on an average. In uncertain times, the fund manager reduces scrip concentration and broadens the portfolio.

The portfolio is aggressively managed. During the height of the market run-up, it had 58.2 per cent in small-cap scrips (with scrips less than Rs 3,000 crore market capitalisation). Its top scrip for many months at the beginning of the year was Pratibha Industries, an infrastructure sector company with a small market cap of Rs 101 crore. In December 2007, RRSFE had 13 per cent of its corpus in the company’s scrip.

The fund manager does not hesitate to churn the scheme’s portfolio. For instance, between June and December 2007, when the market jumped by 39 per cent, RRSFE had just five common scrips between its December 2007 and June 2007 portfolios out of a total of 25 scrips as per its December-end portfolio.

But the scheme’s aggression has paid off. For instance, it sold off its entire holding in L&T as early as September 2007 when infrastructure companies were trading at sizzling valuations. The fund manager believes that the worst in the capital goods sector may not be over yet as the order books of several companies in this sector may have to be scaled down. The fund’s top sectoral allocation is in banking, software and pharmaceuticals sectors.

The scheme is ideal for an aggressive investor looking for all-round action.

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