Review on Tata Pure Equity fund

 Tata Pure Equity suits the profile of conservative investors. The fund has the mandate to invest mostly in large-cap companies. At this juncture, many mid caps are relatively undervalued and since it invests only in large caps, the fund may not be able to benefit from any mid-cap rally in future.

But given its past track record, its NAV is expected to be less volatile than the rest. As a fund house, its prowess in equity fund management has not been consistent across its own equity schemes. ET’s rating for its equity schemes varies from Bronze to Platinum. However, this scheme has been ET’s best performer till date in terms of risk-adjusted returns.

Profile: Tata Pure Equity is ET’s Platinum fund, the highest rating given for any fund, as per the latest ET Quarterly MF Tracker. Its above-average returns and low risk emanating from a large-cap-oriented investment strategy helped it get this rating. The fund was launched in 1998 as Tata Twin Option Fund.

It had a balanced option and pure equity option. In ’00, the fund house restructured the Tata Twin Option fund by merging balance option with Tata Balanced fund and renamed equity option as Tata Pure Equity fund. As on October 31, it had a corpus of Rs 290 crore. M Venugopal has been managing the fund since February ’05.

Performance: While its returns over three years have been above average, the fund couldn’t ‘fully’ capitalise on the large-cap rally seen in ’06. In the calendar year so far, the fund has given a return of 34.4%, which matches that of
ET 100.

This was better than the equity-diversified category, which gave a return of 27%. However, the Sensex gave a return of 38.7% during the period. Though it is a very short duration to assess the performance of the fund in the equity space, the fund’s performance has largely suffered due to the narrow-based rally the market has been witnessing since the crash in May.

The fund gave returns of 57.5% in the one-year period. This was lower than both the fund’s benchmark, Sensex, which gave a return of 65.1 and the broader ET 100, which gave returns of 60.4 %. It was relatively less exposed to the private sector banking and telecom space, which has been one of the reasons for its near-term underperformance.

While banks had a portfolio allocation of 10.2% as of September ’06, the private sector banking stocks, which have done well, comprised a meagre 2%. Telecom stocks accounted for 3.7% of the portfolio.  However, over the three years, its returns have been phenomenal, beating the benchmark and category average. While the fund gave a return of 46.6% p.a., that of the Sensex was 38.5 % p.a. during the period. On the other hand, the equity diversified category as a whole has given returns of 43.7%. ET 100 gave a return of 38.9% p .a.

Portfolio: The fund’s allocation is predominantly large-cap-oriented and it intends to invest anywhere between 80% and 95% of its assets in large caps, as per the fund mandate. Over 80% of the portfolio is currently invested in large-cap stocks.

Sector-wise, the technology sector, which includes IT and telecom stocks, finds the highest allocation of 19.6%. Infosys Technologies (6.7%) and HCL (2%) are some of the stocks in this sector the fund has invested in. Index stocks like Infosys, Reliance and Airtel, which have driven the recent rally, accounted for 13% of the fund’s total portfolio.

The fund also has a high allocation in capital goods and basic engineering sectors. The fund manager is bullish on capital goods as he feels growth will continue to come from capex creation and strong exports.

As on October 31, the fund had an allocation of close to 5% in Bhel. The cement sector, led by Grasim (6%) and ACC (5%), continues to be a favourite for the fund. Though the fund is overweight on the cement sector, the latter has been a drag on its near-term performance.

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