The domestic equity market has been gripped with volatility due to the economic uncertainties caused by the second wave of COVID-19. If you are looking to start your mutual fund journey amid the current market environment, large-cap funds can be a good starting point.

Large-cap funds can be expected to survive market volatility and reward investors willing to stay invested in the long run for stable returns. Stocks in the large-cap segment enjoy competitive advantage and sustainable market share that enables them to efficiently deal with market ups and downs.

Notably, there has been a growing debate about the ability of actively managed large-cap funds to reward investors with superior returns over the benchmark. However, if you carefully select funds in the large-cap space, you can benefit from its steady growth potential.

SBI Bluechip Fund (SBCF) is one of the most popular funds in the large-cap funds category that has shown significant improvement in performance in the current bull phase to figure among the category outperformers.

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

Data as on May 04, 2021
(Source: ACE MF) 

Categorised as a large-cap fund, SBCF is mandated to invest a minimum 80% of its assets in stocks of large-cap companies, defined as the top 100 companies in terms of full market capitalisation. Along with the focus on large caps, the fund manager dynamically varies the allocation to mid-caps depending on the market outlook and prevailing valuations. SBCF has delivered satisfactory long term returns at reasonable volatility, when compared to its benchmark and category peers and has generated decent risk-adjusted returns in the past. An investment of Rs 10,000 in the fund, 5 years back would now be worth Rs 18,667. SBCF’s CAGR over the last 5 years is around 13.3%, slightly lower than the 14.9% CAGR delivered by its benchmark S&P BSE 100 – TRI index. Although the fund has been struggling with the performance for quite some time, it has shown significant improvement in performance in the last one year giving investors confidence about its growth potential.

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

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Canara Rob Bluechip Equity Fund	2,156	52.77	20.16	16.42	17.55	15.98	19.42	0.181
Axis Bluechip Fund	24,598	44.87	17.35	15.29	17.12	16.30	18.06	0.173
Kotak Bluechip Fund	2,357	58.91	16.09	13.00	14.60	15.44	21.70	0.128
BNP Paribas Large Cap Fund	1,027	47.28	16.21	12.96	13.80	15.88	19.11	0.137
Mirae Asset Large Cap Fund	23,762	55.98	13.49	12.45	16.63	17.36	21.56	0.128
UTI Mastershare	7,739	56.60	15.51	11.99	14.28	14.52	20.54	0.122
ICICI Pru Bluechip Fund	26,468	56.61	12.77	11.05	14.84	14.68	21.50	0.099
SBI BlueChip Fund	26,838	59.09	14.36	10.41	13.29	15.91	22.52	0.095
Aditya Birla SL Frontline Equity Fund	19,499	56.57	11.89	9.38	13.18	14.16	21.92	0.087
HDFC Top 100 Fund	18,660	54.14	6.98	9.21	13.58	12.68	23.58	0.078
S&P BSE 100 – TRI		58.51	12.98	11.61	14.93	13.36	21.99	0.115

Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on May 04, 2021
(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 has managed to keep pace and outperform the benchmark in terms of performance over the last 1-year to 2-year period. Whereas, over the 3-year and 5-year period, the fund has trailed the benchmark though nearly in line with the category average. Notably, the fund’s performance had slipped in the past couple of years. Most other prominent large-cap peers too have been found struggling to keep up their performance. Over the longer time period of 7 years SBCF has maintained a significant lead over the benchmark and generated an alpha of about 2.5 percentage points.

SBCF has encountered slightly higher volatility when compared to its benchmark and the category average whereas it fares lower In terms of risk-adjusted returns when compared to the benchmark and prominent large cap peers. However, with an experienced fund manager at the helm, SBCF has the potential to show market-beating performance and create wealth for its investors.

Investment strategy of SBI Bluechip Fund

Categorised under large-cap funds, SBCF is mandated to invest a minimum 80% of its assets in large-cap stocks. While the fund’s portfolio remains biased towards large-caps, it does make opportunistic allocations to mid-caps, but well within the mandated limit. Erstwhile, the fund maintained its own definition of large-caps, but now has to stick to 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 large-sized 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.

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 while picking stocks for the portfolio. Notably, the turnover ratio of the fund has dropped significantly to 15% from around 70% in the last one year, indicating low churn in the portfolio.

Graph 2: Top portfolio holdings in SBI Bluechip Fund

Holding in (%) as on March 31, 2021
(Source: ACE MF) 

As on March 31, 2021, SBCF held a well-diversified portfolio of as many as 52 stocks. The top-10 stocks accounted for around 47.4% 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, Infosys, HCL Technologies, L&T, ITC, HDFC Ltd., Shree Cement, Divi’s Laboratories, and SBI. Notably, the top portfolio holdings contain a good mix of stocks belonging to different sectors.

Stocks like HDFC Bank, ICICI Bank, HCL Technologies, Cholamandalam Investment & Finance, Divi’s Laboratories, Reliance Industries, Infosys, L&T, Motherson Sumi Systems, SBI, among others have turned out to be major contributors to its gains in the last one year.

About 35.7% of SBCF’s portfolio is exposed to Banking and Finance stocks, of which banks account for around 22.4% while other finance stocks account for 13.2%. Infotech, Engineering, Auto, Pharma, and Petroleum Products are the other top holdings with an allocation in the range of around 6%-11% each. The top 5 sectors in the fund’s portfolio together account for around 62.8% of its assets.

Suitability

SBCF holds a decent performance track record over longer time periods of over 5 to 7 years. The fund has distinctly outperformed the benchmark, as well as most of its large-cap peers on many occasions which still gives investors the confidence of its future potential. SBCF has sound risk management techniques as well which has helped it to curb the downside risk and to participate during bull phases.

SBCF’s strategic minor allocation to mid-caps helps it generate significant growth during mid-cap rallies. Moreover, since the fund is completely benchmark agnostic, and its allocation to certain sectors may significantly deviate from the benchmark.

This makes SBCF suitable for long-term investors looking for stability as well as high growth from a large-cap biased fund.

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