Sundaram Select Focus Fund: Long term track record of wealth creation

As per SEBI guidelines, focused equity funds is a category of mutual fund schemes where each scheme is focused on a few stocks – the maximum number of stocks a focused equity fund can invest in is 30. These schemes are less diversified than schemes which invest in a larger number of stocks and thus have higher concentration risks. However, fund managers of focused equity schemes have the ability to generate superior alphas through superior stock selection and sticking to high conviction bets.

Sundaram Select Focus Fund

Sundaram Select Focus Fund was launched in July 2002 and has Rs 1,036 Crores of Assets under Management (31 July 2020). The expense ratio of the fund is 2.35%. It is large cap biased focused equity fund and the scheme benchmark is Nifty 50 TRI. The chart below shows the annualized returns of Sundaram Select Focus fund versus the category average returns over various trailing investment periods (ending 4^th September). You can see that the scheme was able to outperform its category over the last 3 to 5 years.

Rolling Returns

The chart below shows the 3 years rolling returns of Sundaram Select Focus Fund versus its benchmark Nifty 50 TRI since the inception of the scheme. We are looking at 3 year rolling returns because investors should have a minimum 3 year investment horizon for equity funds.

You can see that, the fund was able to beat its benchmark in most periods over the last 5 years. The average 3 year rolling return of the scheme since inception was 17.3% (versus 16.5% for Nifty 50 TRI), while the median 3 year rolling return of the scheme since inception was 12.2% (versus 12.3% for Nifty 50 TRI). For a large cap oriented scheme, these are good returns.

The chart below shows the 3 year rolling returns consistency of the fund since inception. You can see that the 3 year rolling returns (annualized) were lower than 8% (typical fixed income returns) in 27% of the instances, while it was higher than 12% and 15% in 51% and 36% of instances respectively. Therefore, the risk reward trade-off is very much favourable for the scheme.

Portfolio Construction

Rahul Baijal is the fund manager of this scheme. The fund manager invests in a maximum of 30 stocks across sectors with the objective to deliver consistent and steady returns over time with limited volatility. At any time, the fund would have more than 80% of the corpus invested in well managed and established large cap companies (Top 100 companies by market capitalization). Currently (as on 31st July 2020), 85% of the scheme’s assets are invested in large cap companies, 7% in midcap companies (101st to 250^th companies by market capitalization) and the remaining portion in cash and cash equivalents.

The fund manager follows a bottom up approach in stock picking based on in-house research and the fund manager’s conviction. The scheme portfolio is generally focused around 3-4 themes. The investing style of the fund manager has a GARP (Growth at Reasonable Price) bias. Key themes of the fund manager are as follows:

• Consumption: Structural attractiveness due to higher incomes, improving consumption patterns and rising penetration. In relation to this theme, the fund manager is overweight on sectors like FMCG, select Consumer Discretionary, Retail and some Private Banks.


• Domestic Cyclical Recovery: The Indian economy is expected to witness revival in economic growth which will augur well for cyclical stocks. In relation to this theme, the fund manager is overweight on some corporate lenders and select industrial/infrastructure stocks.


• Government Reforms: From the perspective of Government reforms the fund manager is overweight on some privatisation and #MakeinIndia candidates.


• Outlook on Global Sectors: In this regard the fund manager is underweight on metals and global auto cyclicals while being overweight on IT & Pharma.

Lump Sum and SIP Returns

The chart below shows the growth of Rs 1 lakh lump sum investment in the scheme’s growth option since inception. Your investment in the scheme would have grown nearly 20 times to 18 lakhs over the last 18 years or so.

The chart below shows the returns of Rs 10,000 monthly SIP in the scheme’s growth option since inception. With a cumulative investment of Rs 21.6 Lakhs, you could have accumulated a corpus of Rs 80 Lakhs in the last 18 years. Both in lump sum and SIP modes Sundaram Select Focus has been a great wealth creator for investors over long investment periods.

Conclusion

Sundaram Select Focus Fund has completed 18 years since its launch. As a focused large cap oriented fund, its performance is quite good. A focused fund can underperform from time to time but has the potential to give good returns in the long term. If you are looking for portfolio stability and long term capital appreciation, then you can evaluate Sundaram Select Focus Fund. You need to have moderately high risk appetite to invest in this fund. This fund can be suitable for long term financial goals like retirement planning, children’s education, children’s marriage and wealth creation. You can invest in the fund both in lump sum and SIP modes; if you are worried about volatility, then you can consider doing a 6 month Systematic Transfer Plan (STP). Investors should consult with their financial advisors if Sundaram Select Focus Fund is suitable for their investment needs.