Fund of Fortnight

Sundaram Financial Services Opportunities Fund - Direct Plan

Reason for recommendation

The Indian equity market witnessed one of the best weekly gains since 2021 for the week ended July 22. Frontline equity indices moved up by 3.5 per cent. Nonetheless, what stole the show were the indices of banking and financial services that shot up by almost 5 per cent in the same period. Some of the reasons for such a surge include better results posted by banks and valuation comfort. Hence, allocating a part of your portfolio to banking and financial services funds makes more sense at this point. Sundaram Financial Services Opportunities Fund is our preferred candidate.

The fund has outperformed the benchmark and its peers over the longer duration. In the last three-year and five-year period the fund has generated return of 12.39 per cent and 9.63 per cent, respectively. Compare this with S and P BSE Bankex TRI return of 9.06 per cent and 9.39 per cent in the same duration. This is not the end of the story. The fund is way ahead of other funds in the category in terms of mean returns, Sharpe ratio, Sortino ratio and alpha. Also, in terms of risk as measured by standard deviation and beta it is in the second quartile. This shows the ability of the fund to deliver better risk-adjusted returns. 

The fund indeed carries a concentration risk as it only invests in selective stocks with top 10 holdings forming 76.15 per cent of the overall portfolio. Looking at its portfolio, it is heavily invested in ICICI Bank and HDFC Bank carrying weightage of 18.28 per cent and 15.53 per cent, respectively. Along with stocks like HDFC Bank, State Bank of India and Axis Bank are included in the portfolio too. As we believe that the markets will turn upwards from here onwards, a concentrated portfolio that invests in banking and financial services stocks would benefit investors. Since this is a sectoral fund, high-risk investors can allocate a maximum of 5 per cent of their portfolio.