Indian funds are ranked seven out of the top 10 in the league table of leading small-cap funds across Asia, thanks to the growing appetite of investors for cheaper stocks with the possibility of multi-bagger returns, thanks to some stock picks.
An analysis of about 300 Asian small-cap schemes shows that DSP BlackRock is leading the micro-cap fund charge, which returned 82% last year. Directed by Vineet Sambra, who has been with DSP BlackRock for more than three years, the fund has also beaten the 58% growth of the BSE Small-Cap Index since August 2009. The 30-share benchmark Sensex is up 20% this time around. The period when the broader BSE 500 index rose 27%.
The other six schemes – Sundaram BNP Paribas Select Small Cap, HSBC Small Cap, JPMorgan Smaller Company, Franklin India Prima, Franklin India Smaller Company and ING Vaishya Cube – have given investors returns of 44% to 57% on a 12-month basis. These schemes operate anywhere between `46 crore to` 954 crore.
Four of these funds were launched at the top of the previous bull run between January 2007 and March 2008, and investors in them also suffered massive losses in their initial investments in the ensuing recession.
Mutual fund tracking firm Value Research called the DSP Fund an impressive product throughout the “small-cap universe”, noting that the stocks it possesses have “a credible, familiar name and a marked absence of momentum in the portfolio”. The holding of the fund includes companies with high returns in equity and strong leadership in their industry.
Dhirendra Kumar, CEO of Value Research, said that the closed nature of some of these funds has helped them in weathering market volatility. “These funds did not face the pressure of redemption through the reduction phase. It has helped them invest in the long run, “he said.
The DSP fund opened in June of this year, and the fund manager, Mr. Sambre, has kept about 10% of his $ 311-crore corpus in cash to meet potential redemption and get any opportunity in the market.
There are 10 small-cap funds in India, which handle approximately Rs 3,450 crore worth of stocks. These accounts for only 2% of the total AUM under equity schemes.
Market experts say that in the last one year many large-cap stocks have become full-priced and relatively unattractive, with the rally shifting to smaller caps. Stocks such as cooler maker Symphony and luggage maker VIP Industries have led the market in small-cap charges. Ahmedabad-based Symphony has grown by 830% while VIP has grown by 548% in the last 12 months. By comparison, the top two gainers in the Sensex – Tata Motors and Tata Consultancy Services – rose 135% and 61%, respectively.
Deben Choksy, chief executive officer of KR Choksey Shares & Securities, said: “Many small caps with excellent business were trading at a pitifully low valuation – many were trading below the book value and at 5-7% dividend.” “They’ve just been bought in bulk.”
Although small-cap funds have provided solid returns over the past year, experts say investors must be cautious and have only 10-15% of their equity exposure in such funds or firms. This is mainly due to the volatile nature of their stock performance.
“Investors need to have a strong stomach and ability
Endure the significant decline of such funds, ”said Mr. Kumar in the quality study.