SBI Magnum Multicap Fund: A consistent performing multicap equity fund

The last one month has seen stock market crashing all across the world. However, history of past bear markets tell us that 25 – 30% fall in share prices create attractive investment opportunities for long term investors. While Nifty (large cap) has fallen 30% from its all time high, midcaps have fallen more than 40% from their peaks. From a valuation perspective, P/E multiples of both Nifty and Nifty Midcap 100 are trading at less than 20X – Nifty is trading around 19X while Nifty Midcap 100 is trading at 18 – 19X.

That is why many investment experts are recommending buy at dips at these levels. In our view, multi-cap equity funds is a good investment strategy now because you will able to invest in blue-chip (large cap) stocks at cheap valuation and also get a boost to your long term returns due to the midcap allocation in your investments.

SBI Magnum Multi-cap Fund

SBI Magnum Multi-cap Fund is one of the best performing multi-cap funds for the last several years. One of the best aspects of the fund’s performance is its consistency. The fund has beaten its market benchmark BSE-500 TRI in both rising and falling market (please see the NAV movement chart of the scheme below).

Source: Advisorkhoj Research

Rolling Returns

Rolling returns is the best measure of performance consistency of a mutual funds scheme across different market conditions. The chart below shows the 3 year rolling returns of SBI Magnum Multicap Fund over the last 5 years versus the category average rolling returns of multi-cap funds. In the last 5 years, the market had experienced different types of movements – rallies, corrections, range-bound, volatility etc. We are showing 3 year rolling returns, because investors should always have a long investment tenor for equity funds. A 3 year tenor is considered to be the minimum length of time investors should be ready to hold an equity fund – longer the tenor, the more likely that, investors will get better returns.

Source: Advisorkhoj Research

You can see that SBI Magnum Multicap Fund consistently outperformed multi-cap funds category in the last 5 years. The average 3 year rolling returns of the fund over the last 5 years was 11.98% (versus 6.3% for the category). The median 3 year rolling returns of the fund was 12.3% (versus 7.5% for the category). The maximum 3 year rolling returns of the fund was 16.85% and the minimum 3 years rolling returns was -4.8%.

What is the significance of these rolling returns?

12% annualized returns is normally considered good performance under normal circumstances, but if we analyze the market conditions across the last 5 year, you will appreciate why the performance of SBI Magnum Multicap Fund has been exceptional.

• SBI Magnum Multicap, as the name suggests, invests across all three market segments i.e. large cap, midcap and small cap. There are no upper / lower limits on allocation to any segment.


• In the last 5 years, we saw two bear markets in large caps caused by global factors. In 2015 – 16, the Nifty fell by more than 20% due to economic slowdown in China and Euro-zone debt crisis, triggering crash of crude prices and fear of global recession. From February of this year, we have again been in a bear grip (30% crash) due to Coronavirus. In 2015-16 deep correction was mostly limited to large caps, but the recent correction has affected all market segments.


• Midcaps and small caps have been in bear market since 2018 continuing till date, i.e. for almost two years. Midcap and small cap indices have fallen 40 and 60% respectively. Out of the last 5 years, one or more segments of the stock market were severely affected for at least 3 years.


• The economy has been subjected to severe one time disruptions caused by policy impacts like demonetization, GST roll-out and now lock-down in response to Coronavirus. This had a shock impact on stock markets too, from which market eventually recovered though effect of Coronavirus has yet to be played out.


• The Indian economy has been slowing down for the last 2 years, which has had an effect on corporate earnings.

Despite all these disruptions and sharp corrections, SBI Magnum Multicap Fund has given nearly 12% annualized rolling returns. It should be apparent to investors, why this fund is considered to be one of the best performing multicap funds. The 3 year performance of this fund across different market conditions should also impress upon investors the importance of staying invested since market eventually recovers and enables you to get good returns over a long investment horizon.

We reviewed this fund last in August 2018 and suggested investors to invest with a 5 year investment horizon in mind – One of the best performing multi-cap mutual funds

Portfolio Construction

The investment objective of the scheme is to provide investors with opportunities for long-term growth in capital along with the liquidity of an open ended scheme through an active management of investments in a diversified basket of equity stocks spanning the entire market capitalization spectrum and in debt and money market instruments. The scheme follows a bottom-up approach to stock-picking and chooses companies across sectors/styles. The scheme is fairly well diversified across different sectors. Company concentration risk is also low.

About SBI Magnum Multicap Fund

The fund was launched in September 2005. The fund has over Rs 8,490 crores of assets under management (as 29^th February 2020). The expense ratio of the fund is 1.89% (as 29^th February 2020). Anup Updhyay is the fund manager of this scheme.

Conclusion

In this post, we have reviewed SBI Magnum Multicap Fund. This September the fund will complete 13 years since inception and boasts of a very strong performance track record. Investors should have moderately high risk appetite and minimum 5 year tenure for this fund – longer your investment tenure, better is the possibility of getting higher returns. The ideal way of investing in this fund in current market conditions is through systematic investment plan (SIP), but if you have already invested in this fund, either in lump sum or SIP, you should remain invested and continue your SIP. If you have lump sum funds and want to invest in this scheme, then you can invest in SBI Liquid Fund and invest from the liquid fund into SBI Magnum Multicap through 6 month or 12 month STP. Investors should consult with their financial advisors if SBI Magnum Multicap Fund is suitable for their investment needs.