Fund For All Seasons - IDFC Imperial Equity Fund

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Currently investors are surrounded with lots of uncertainty about the direction of the market. In such a scenario it is best to take the help of professionals to make your investment decisions. A mutual fund is one of such professionally managed instruments. But here’s the important question: Which is the fund that you should lock on? Investors should, at a time like this, select a large-cap biased fund having a decent track record in the long run and one that has managed to restrict the losses in last year’s market fall. IDFC Imperial is one such fund that focuses on investing in the scalable sectors and in those blue chip companies that provide decent revenue visibility. Initially, the fund’s strategy was to invest in companies based on the potential value unlocking (subsidiaries listing, etc). However, the fund has changed its strategy and is now concentrating on those market leaders that capture almost 70 per cent of India Inc. Using the top-down approach, the fund selects the sectors by dividing it into assets, liabilities and other categories depending on the sectors’ characteristics and influence of the macro environment on it. The fund keeps shifting between assets and liabilities and maintains a small portfolio of 21-22 stocks.

In December 2008, the fund’s top three sectors were banks, petroleum and automobiles. These three sectors have been the top three since September 2008. The bank and auto sectors were selected as interest rates were to come down. The petroleum sector was chosen as the crude prices were falling, thereby reducing the subsidy burden on the refining companies. The top ten stocks out of the concentrated portfolio of 18 stocks contributed 51.49 per cent of the net assets. The fund is managed by Kenneth Andrade since its inception that ensures stability and consistency in investment style and performance. Kenneth also manages funds like IDFC Premier Equity (featured in the Fund Of The Fortnight column in our issue dated November 9, 2008), Enterprise, Small-Cap & Mid-Cap (SME) and Strategic Sector (50-50). All these funds have managed to out-perform in their category returns. According to Kenneth, “The focus of the fund has always been to remain in the larger part of the market and be invested in large-caps. Further, we have avoided most of the momentum sectors in 2007 and that has helped the fund to curtail the losses.” The fund is about to complete 3 years, while in the two-year and one-year period it gave returns of minus 35.90 per cent and minus 9.78 per cent compared to the category returns of minus 49.98 per cent and minus 20.32 per cent respectively. The fund’s cash holding stood at 20.43 per cent in December 2008 signifying the fund’s defensive approach. And despite its concentrated portfolio the fund has been able to restrict losses on account of the large-cap stocks exposure. In the bullish market, the focused stocks’ allocation may help the fund to lead the rally. Thus even novice investors can take exposure to this fund through SIP.