The constant rise in Covid-19 cases domestically and across the globe has deepened concerns about the health of world economy. Investor sentiments have dented as recession gripped global economy following extended lockdown phases in major economies to curb the virus outbreak.

Amid this challenging economic growth prospects, it is important to add an element of stability to your investment portfolio to reduce the impact of volatility. Large cap funds are best suited to meet this requirement and should preferably find place among the core holdings of your portfolio.

Large caps are established and quality companies that have the potential to generate steady returns for those looking for decent returns but want to assume relatively lesser risk.

SBI Bluechip Fund (SBCF) is one such large cap fund that aims to provide investors long term growth in capital through a diversified basket of large cap stocks.

Graph 1: Growth of Rs 10,000 if invested in SBI Bluechip Fund 5 years ago

Data as on September 22, 2020
(Source: ACE MF) 

SBCF has delivered satisfactory long term returns at a reasonable volatility, when compared to its benchmark and category peers and has generated decent risk-adjusted returns in the past. SBCF has managed to restrict losses in bear phases and has not compromised much on returns in bull phases. However, it has struggled in certain bull phases. An investment of Rs 10,000 in the fund, 5 years back would now be worth Rs 14,581. SBCF’s CAGR over the last 5 years is around 7.8%, slightly lower than the 8.7% CAGR delivered by its benchmark S&P BSE 100 – TRI index. The impact of the ongoing market crash is clearly visible in its performance, where it has been struggling to maintain a lead over the benchmark. Although the fund has been struggling with the performance for quite some time, it is one of the well-managed funds and still has superior growth potential.

Table: SBI Bluechip Fund’s performance vis-à-vis category peers

Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on September 22, 2020
(Source: ACE MF)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

SBCF’s performance over the past 1-year to 3-year period has fallen short of the benchmark. Notably most other prominent large cap peers too have been struggling to keep up their performance. Over the longer time periods of 5 years while the fund has slightly trailed the benchmark, its performance has been largely in line with the category average returns, whereas on a 7 years return basis, SBCF has maintained a significant lead over the benchmark and generated an alpha of over 2 percentage points.

On risk return parameters, while SBCF has encountered reasonable volatility when compared to its benchmark and the category average, it has trailed in terms of risk adjusted returns. However, with an experienced fund manager at the helm, SBCF has the potential to show a turnaround in performance.

Investment strategy of SBI Bluechip Fund

SBCF is mandated to invest a minimum 80% of its assets in large-caps. While the fund is predominantly large-cap biased, it does make opportunistic allocations of around 10% to mid-caps. Erstwhile, the fund maintained its own definition of large-caps, but now follows the list provided by AMFI. SEBI has stipulated that the first 100 stocks by market capitalisation will be considered as large-caps.

The fund manager aims to invest in such companies with an established business presence, good reputation, solid brand equity and which are possibly market leaders in their industries with less uncertainty in top-line and bottom-line growth. The investment team also aims to keep an eye on consistency in management performance, change in leadership and key management decisions that can affect the outlook of the business.

Graph 2: Top portfolio holdings in SBI Bluechip Fund

Holding in (%) as on August 31, 2020
(Source: ACE MF)

SBCF usually holds about 50-60 stocks in its portfolio and follows a buy and hold investment strategy, which reflects the strong long-term conviction the fund management has when it pick stocks for its portfolio. As on August 31, 2020, SBCF held a well-diversified portfolio of as many as 57 stocks. The top-10 stocks accounted for around 46% of the portfolio. HDFC Bank topped the list with an allocation of around 9.6%, followed by some other popular large cap names like ICICI Bank, Divi’s Laboratories, Reliance Industries, and HCL Technologies. Notably, the top holding contains a good mix of stocks belonging to different sectors.

In the last one year stocks like Divi’s Laboratories, Reliance Industries, Nestle India, HCL Technologies, Infosys, PI Industries, among others contributed the most to the fund’s gain, whereas stocks like L&T, ITC, SBI, Axis Bank, HDFC, etc. turned out to be the laggards.

About 35% of SBCF’s portfolio is exposed to Banking and Finance stocks, of which banks account for 22.7% while other finance stocks account for 12.3%. Pharma, Infotech, Petroleum and Auto are the other top holding with an allocation in the range of 7-9% each. The top 5 sectors in the fund’s portfolio together account for around 61% of its assets.

Suitability

SBCF holds a commendable performance track record over longer time periods of 5 years and more. It has distinctly outperformed the benchmark, as well as most of its large-cap peers in the past. Being a large cap fund, SBI Bluechip Fund invests majority of its assets in large caps that are known to provide stability in the long run. At the same time it seeks opportunities in mid caps that can push up the portfolio gains.

Though the fund has performed well over longer time horizon, its performance track record over the last few years raises some concerns about consistency and ability to generate superior risk-adjusted returns. Moreover, its concentrated bets towards few selected sectors could prove risky if any of these sectors come under pressure. This makes it suitable for investors with moderately high risk appetite and investment horizon of at least 5 years.

Note:   This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

This article first appeared on PersonalFN here