Premier Among Its Peers - IDFC Premier Equity

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Having concentrated on the large-cap biased funds in many of our previous issues, here comes a fund with almost 90 per cent of its equity portfolio invested in companies which doesn't have much of a track record or discovery businesses that may be mid-cap or small-cap space. IDFC Premier Equity is open-ended diversified scheme that has a kind of venture capitalist investment approach. It first selects the industry depending on the scalability of business operations and the ability to grow fast. Then it selects a young company having dynamic management skills.

The fund, unlike most of the open-ended equity funds, is not open for subscription at all points of time. When the fund house feels that they don't have an idea or opportunity for investment, the fund closes the subscription. However, SIPs are allowed and for a large part of 2007, subscription was closed. The fund has a fairly diversified portfolio with 27 stocks across various sectors. However, the biggest component in the portfolio is the financial services which include major private sector banks and NBFC on account of strong businesses, consolidating markets, and the opportunity in this sector which is quite scalable.

The fund has changed its investment style from building only on growth businesses in the portfolio. Now it will also include the valuations. Fund Manager Kenneth Andrade is proficiently managing this fund since February 2007. He also manages funds like IDFC Imperial, Enterprise, Small-cap & Mid-cap (SME) and Strategic Sector (50-50). Kenneth says, "The current environment is extremely challenging, but the businesses are available at distressed valuations. And once the environment stabilizes, equity as an asset class will take time to recover and the fund might deliver returns in line with the market expectations."

The fund has just completed 3 years and has managed to put up such a commendable performance in this period that it featured in DSIJ-edition no. 8 in the same column. For 3 years and 1-year periods the fund gave returns of 16.02 per cent and minus 28.24 per cent compared to the category returns of 7.49 per cent and minus 38.59 per cent respectively. One has to note that the fund has managed to beat the category returns which also include large-cap biased funds. In the last six months the fund on an average had 20 per cent cash in its portfolio because of the nature of mid-cap stocks which are not very liquid.

The fund might deploy these cash holdings in December, once it sees the stability in the market. Due to its asset allocation towards mid-cap as well as small-cap companies and the investment strategy the fund carries higher risk. However, considering the fund manager's aptitude and such a remarkable performance by the fund since its inception, investors can take limited exposure to the fund through SIP.