Edelweiss Diversified Growth Equity Top 100
Large caps are the companies which fall at the uppermost layer of the market capitalisation pyramid. Often, the total market capitalisation of any market is dominated by mainly a few large companies. These companies act as bellwethers for some major industries of an economy. Large caps are well-established businesses, have stable revenues, high market share and are usually well researched. Performance of large caps is more predictable than their highly volatile midcap peers. Due to their huge size, the large cap companies have the ability to weather the unfavourable economic conditions. Hence these companies command a premium over the mid and small cap companies despite growing at a slower pace. Since large cap stocks have limited scope of growth as compared to smaller companies; investing in them at reasonable valuations is considered imperative.
Edelweiss Diversified Growth Equity Top 100 (EDGE T100) is one such open ended fund from the stable of Edelweiss Mutual Fund. EDGE T100 focuses on growth opportunities predominantly in the large cap space by investing in equity and equity related instruments of the 100 largest corporates by market capitalisation listed in India. Launched in May 2009, the fund has been in existence for over 3 years now.
| Type of scheme | Open-ended |
| Category | Diversified |
| Sub-category | Large Cap |
| Style | Growth |
| Launch date | 20-May-09 |
| Risk-Return proposition | Low Risk- Moderate Return |
Investment Objective and Proposition
The fund’s primary investment objective is to “generate capital appreciation, from a portfolio that is substantially constituted of equity securities and equity related securities of the 100 largest corporates by market capitalisation, listed in India. However, there is no assurance that the investment objective of the Scheme will be realized and the Scheme does not assure or guarantee any returns.”
Portfolio Characteristics
In the last one year, exposure of EDGE T100 to large caps has ranged between 49.5% - 67.5% of its total assets, while in midcaps it has ranged from 5.8% - 26.2%. The fund has taken aggressive cash calls as the debt and cash component has been above 20% on quite regular basis.
Being a large cap growth oriented fund, EDGE T100 is mandated to invest 65%-100% of its assets in equity shares of Top 100 largest companies by market capitalisation. The allocation to stocks smaller than the 100th stock can be in the range of 0%-20%. Cash and Debt component can be 35% at the maximum. Fund manager uses the bottom up approach to shortlist stocks for the portfolio and may also use the quantitative model in the process of stock filtration.
Equity Portfolio
| Holdings | Dec 2011 | Jan 2012 | Feb 2012 | Mar 2012 | Apr 2012 |
|---|---|---|---|---|---|
| Tata Consultancy Services Ltd. | 1.8 | 1.8 | 3.1 | 2.2 | 5.2 |
| Hindustan Unilever Ltd. | 5.1 | 3.1 | 2.6 | 6.9 | 5.2 |
| Mahindra & Mahindra Ltd. | - | - | - | 3.8 | 4.2 |
| HDFC Bank Ltd. | 7.1 | 2.3 | 3.8 | 1.9 | 3.7 |
| Kotak Mahindra Bank Ltd. | 0.6 | 0.6 | 0.7 | 3.2 | 2.8 |
| Bank Of Baroda | - | - | 0.7 | 3.2 | 2.6 |
| Axis Bank Ltd. | - | 0.6 | 5.3 | 3.1 | 2.5 |
| Tata Motors Ltd. | 1.0 | 1.0 | 1.0 | 2.2 | 2.4 |
| HDFC Ltd. | 6.3 | 3.9 | 2.9 | 5.8 | 2.3 |
| ITC Ltd. | 3.8 | 3.2 | 1.3 | 2.1 | 2.3 |
Top 10 holdings (in %) as on April 30, 2012
(Source: ACE MF,PersonalFN Research)
As disclosed on April 30, 2012, the portfolio is well diversified over 57 stocks. Large caps account for 60.7% and mid & small caps constitute 18.6% of the portfolio. The fund holds a significant proportion of its portfolio in cash and equivalent asset which amounts to 20.8% of the portfolio. Top 10 holdings form 33.2% of its assets while allocation to top 5 sectors is 42.0%, which shows that the fund has diversified well across stocks and sectors. The fund manager has very aggressively churned the portfolio as its portfolio turnover ratio is 4.52 times which is considered as extremely high.
How EDGE has fared vis-à-vis its peers
| Scheme Name | 6-Mth (%) | 1-Yr (%) | 3-Yr (%) | 5-Yr (%) | Std. Dev. (%) | Sharpe Ratio |
|---|---|---|---|---|---|---|
| Birla SL Top 100 (G) | 3.4 | -6.1 | 7.7 | 5.4 | 5.73 | 0.09 |
| Edelweiss EDGE Top 100-A (G) | 2.8 | -4.2 | 7.2 | - | 5.09 | 0.05 |
| Kotak 50 (G) | -1.7 | -8.6 | 5.4 | 5.2 | 5.14 | 0.05 |
| Reliance Vision (G) | 5.0 | -10.0 | 5.4 | 4.1 | 6.40 | 0.07 |
| SBI BlueChip (G) | 4.2 | -5.8 | 3.3 | 2.5 | 5.99 | 0.04 |
| Sundaram Select Focus (G) | -4.2 | -12.0 | 0.4 | 4.2 | 6.30 | 0.00 |
| S&P CNX Nifty | -0.3 | -9.1 | 3.2 | 3.9 | 6.19 | 0.02 |
(NAV data is as on June 07, 2012. Standard Deviation and Sharpe ratio is calculated over a 3-Yr period. Risk-free rate is assumed to be 6.37%)
(Source: ACE MF,PersonalFN Research)
The table above reveals that the returns generated by EDGE T100 over last 3 years have been satisfactory. The fund has managed to beat its benchmark S&P CNX Nifty by a margin of 4.0% which has generated 3.2% CAGR returns over last 3 years. EDGE T100 has also outperformed the category average CAGR returns of 5.4% over the time period of 3 years.
With a standard deviation of 5.09%, EDGE T100 is one of the least volatile funds in the category of large cap funds. The standard deviation of S&P CNX Nifty has been 6.19% while the category average is 5.72%; higher than that of the EDGE T100.
The fund has outperformed some of the established large cap funds with a noticeable margin over last 3 years. However, risk adjusted returns generated by the fund are ordinary. The Sharpe Ratio, which is a measure of risk adjusted performance, is merely 0.05 which is higher than that of its benchmark but a tad below the category average of 0.06. Therefore, EDGE T100 is a low risk-moderate returns proposition.
| BULL PHASE | CORRECTIVE PHASE | |
|---|---|---|
| 20-May-2009 - 05-Nov-2010 | 05-Nov-2010 - 07-June-2012 | |
| Edelweiss EDGE Top 100-A(G) | 37.6% | -9.6% |
| Category Average of Large Cap Funds | 36.6% | -12.3% |
| S&P CNX Nifty | 30.6% | -13.1% |
(Source: ACE MF, PersonalFN Research)
A study of performance across market cycles reveals that the EDGE T100 has outperformed its benchmark as well as the category average returns in both, bull and corrective phases, since its inception in May 2009.
Fund Manager Profile
| Name of the Fund Manager | Paul Parampreet | Dhilip Krishna |
| Total Work Experience | Over 5 years | Over 4 years |
| Managing the fund since | Feb-10 | Jan-12 |
| Qualifications | B.Tech (IIT, Kharagpur), MBA (IIM-C) | B.E (NIT, Karnataka), MBA (IIM-B) |
In a nutshell...
Edelweiss Diversified Growth Equity Top 100 has generated satisfactory returns for its investors. However the fund is yet to establish a track record in a bear market phase EDGE T100 was launched when the markets had recovered from the bearish phase in May 2009. Hence we recommend that those who have already invested in Edelweiss Diversified Growth Equity Top 100 should hold onto their investments. The portfolio churning is extremely high (expense ratio of 2.25%) which may result in higher transaction charges ultimately borne by the investors. The fund has to maintain consistency in its performance before a new investor could include Edelweiss Diversified Growth Equity Top 100 in his long term mutual fund portfolio.
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