A Champion In The Basket

This large-cap fund can give stability to your portfolio as it limits the downside risk in volatile markets

Despite being one of the late entrants in the large-cap fund space, DSP ML Top 100 Equity Fund (DT100) has been one of the best performing schemes in this category. Here’s why it should be one of your first choices if you are shopping for large-cap funds. What’s it about?Launched on 21 February 2003, DT100 is a large-cap-oriented fund that aims to invest in the top 100 companies (by market capitalisation). It follows a mix of top-down and bottom-up style of investing. DT100 is well-diversified and holds around 40-50 scrips on an average. Its offer document says that it can hold up to 10 per cent of its corpus in cash. During volatile markets when liquidity drops in small- and medium-sized companies, a large-cap fund ensures stability to your portfolio as it falls less than small- and mid-cap funds. PerformanceDT100 has outperformed its benchmark index, the BSE 100, as well as the category average across all time periods. As on 25 July, DT100 returned 38.78 per cent in the past five years as against 34.76 per cent by its category and 31.97 by BSE 100. We also checked out the scheme’s rolling returns (an average of one-year returns over a total period of the past three years) to check out its consistency. Here, too, it scored over its category average and benchmark index. DT100 also scores low on its risks and this helps it give a superior risk-adjusted return (the best among 18 funds in the large-cap funds space). It bodes well for your portfolio if your fund delivers high returns and also keeps its risk levels in check. PortfolioWhen compared to small- and mid-cap funds, where the universe of target stocks is as wide as it can get and where one mutual fund’s research can be vastly different from the other’s, it’s tough for a large-cap fund to stay significantly ahead of the competition as all large-cap funds target the top 100 companies. To counter this, DT100’s fund manager actively manages the scheme and books profits from time to time. The fund manager has reduced exposures in banking and finance sector on the back of rising interest rates and also in capital goods and cement sectors as he feels the valuations have been high. Instead, the fund has increased its exposures to defensive sectors like pharmaceuticals and telecom, which are not sensitive to the interest rate cycles. Volatile oil prices have also led the fund manager to hedge exposure in this sector by buying into companies that would benefit from either rising oil prices (Cairn; 2.07 per cent and ONGC; 1.91 per cent) or falling oil prices (IOC; 2.01 per cent). Typically, when oil prices rise, oil manufactures like Cairn and ONGC gain since they realise a higher value, but when oil prices fall, oil retailers like IOC gain since they sell petrol through their petrol pumps. A notable feature of this scheme is that it also takes exposures in the derivatives segment to hedge its risk and reduce the impact of volatility on its portfolio. Since the end of January till date, its top exposures—as per its month-end portfolios—have been in Nifty Futures. This along with a high exposure to cash (11 per cent average exposure since February) and liquid debt securities has helped the fund tide over the volatility better as its fall during the past six-month period has been among the least in the category. We suggest you take the systematic investment plan route to invest in DT 100.