JM Multi Strategy Fund
Flexi Cap funds, as the name suggests, have the privilege to invest in stocks of companies across market cap segments (large cap, mid cap, small cap). Due to their flexible investment style, these funds stand a better chance, to benefit from the attractive investment opportunities arising under any market cap segment in the equity markets. Some flexi cap funds tend to remain inclined towards large caps as their core holding to provide stability to the fund’s portfolio, while partly combine their portfolio with mid and small caps in order to generate high returns for their investors. A well-managed flexi cap fund can add significant value to an investor’s portfolio over the long-term.
JM Multi Strategy Fund (JMSF) is one such open ended fund from the stable of JM Mutual Fund that mainly uses a combination of multiple strategies to align the portfolio with the market momentum. Launched in September 2008, the fund has been in existence for over 3 years now.
| Type of scheme | Open-ended |
| Category | Diversified equity |
| Sub-category | Flexi cap |
| Style | Blend |
| Launch date | 23-Sep-08 |
| Risk-Return proposition | High Risk-Low Return |
Investment Objective and Proposition
The fund’s primary investment objective is to “provide capital appreciation by investing in equity and equity related securities using a combination of strategies”.
Portfolio Characteristics
In the last one year, exposure of JMSF to large caps has ranged between 55.8% - 79.3% of its total assets, while in midcaps it has ranged from 6.1% - 11.8%. Fund has not taken aggressive cash calls as the debt and cash component has not gone above 10% of its assets. However, a noteworthy point is that the fund follows the practice of not disclosing a part of its portfolio which, in last one year, has ranged from 8.8% - 27%.
JMSF, depending on the prevailing market conditions, adopts suitable investment strategies. In flat and bull market conditions, the fund endeavours to hold a concentrated and aggressive portfolio of 25-30 stocks. On the other hand it goes defensive in bearish market conditions and holds a diversified portfolio of 40-60 stocks. During the bullish market phases, JMSF buys more growth stocks while value stocks are preferred in bearish market phases. Such strategies, in the view of fund management, help to counter the various risks an open ended equity fund is exposed to such as economic cycles, market momentum etc.
Equity Portfolio
| Holdings | Dec 2011 | Jan 2012 | Feb 2012 | March 2012 | April 2012 |
|---|---|---|---|---|---|
| ICICI Bank Ltd. | 5.8 | 7.1 | 7.9 | 8.6 | 8.8 |
| Larsen & Toubro Ltd. | 4.5 | 5.1 | 5.5 | 7.7 | 7.5 |
| Tata Motors Ltd. | 8.3 | 7.5 | 7.5 | 7.1 | 6.4 |
| Infosys Ltd. | 4.2 | 4.7 | 4.5 | 5.7 | 6.3 |
| Bank Of Baroda | 4.1 | 4.0 | 5.0 | 5.4 | 5.4 |
| ACC Ltd. | 4.4 | 4.4 | 4.7 | 5.4 | 5.1 |
| Eicher Motors Ltd. | 3.2 | 3.4 | 3.9 | 4.1 | 3.9 |
| Reliance Industries Ltd. | 7.2 | 5.8 | 3.8 | 3.8 | 3.9 |
| Bharti Airtel Ltd. | 3.8 | 3.7 | 3.8 | 3.8 | 3.9 |
| Dr Reddys Laboratories Ltd. | 3.5 | 3.2 | 3.1 | 3.6 | 3.8 |
Top 10 holdings (in %) as on April 30, 2012
(Source: ACE MF, PersonalFN Research)
As per the portfolio disclosed on April 30, 2012, the fund holds in all 22 stocks. Top-10 stocks constitute 55.0% of the portfolio while exposure to top-5 sector stood at 40.7% of the total equity portfolio. As on April 30, 2012, large caps constituted 79.3% of the portfolio, while its exposure to mid and small caps was 7.3%, other equity component 9.6% and cash & cash equivalent assets to the tune of 3.9%. Though the fund’s portfolio turnover ratio of 13.05% indicates low churning, the expense ratio of 2.36% eats into its investors’ net returns.
How JMSF has fared vis-à-vis its peers
| Scheme Name | 6-Mth (%) | 1-Yr (%) | 3-Yr (%) | 5-Yr (%) | Std. Dev. (%) | Sharpe Ratio |
|---|---|---|---|---|---|---|
| HDFC Equity (G) | 1.5 | -13.4 | 20.4 | 9.0 | 7.23 | 0.22 |
| UTI Equity (D) | 1.9 | -3.7 | 18.6 | 8.3 | 5.90 | 0.22 |
| Reliance Reg Savings-Equity (G) | 1.9 | -12.5 | 16.2 | 10.0 | 7.96 | 0.16 |
| Franklin India Flexi Cap (G) | -2.4 | -12.5 | 15.3 | 5.4 | 6.95 | 0.17 |
| SBI Magnum Multiplier Plus'93 (D) | 3.7 | -7.1 | 15.0 | 5.9 | 6.69 | 0.16 |
| JM Multi Strategy (G) | -4.2 | -18.3 | 2.6 | - | 8.09 | 0.03 |
| BSE-500 | -0.5 | -12.1 | 11.8 | 2.4 | 7.52 | 0.13 |
(NAV data is as on May 17, 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 JMSF has not generated adequate returns for its investors. It has not only underperformed the 11.8% CAGR returns generated by its benchmark, BSE-500, but also the category average returns of 14.3% CAGR over last 3 years. The fund has managed to generate mere 2.6% CAGR returns over last 3 years. Moreover, on the volatility front, the fund has exposed its investors to high risk as demonstrated by its standard deviation of 8.09%, which is higher than 7.52% of BSE 500 and the category average of 6.72%. At the same time, the returns generated by the fund are dismal and hence the Sharpe ratio of 0.03 appears poor in comparison to that of its benchmark and peers. This makes it a high risk-low return investment proposition.
| BEAR PHASE | BULL PHASE | CORRECTIVE PHASE | |
|---|---|---|---|
| 23-Sep-2008 - 09-Mar-2009 | 09-Mar-2009 - 05-Nov-2010 | 05-Nov-2010 - 17-May-2012 | |
| JM Multi Strategy (G) | -28.5% | 69.5% | -26.2% |
| BSE-500 | -42.5% | 86.6% | -17.8% |
(Source: ACE MF, PersonalFN Research)
A study of performance across market cycles reveals that during the last bull phase of the Indian equity markets JMSF has miserably underperformed BSE 500. Although it had managed to beat BSE 500 during the bear phase of 2008-09; the success mainly attributed to the timing of its launch. Performance of JMSF has been poor in the on-going corrective phase too.
Fund Manager Profile
| Name of the Fund Manager | Mr. Sanjay Kumar Chhabaria |
| Total Work Experience | Over 9 years |
| Managing the fund since | Feb-09 |
| Qualifications | PGDBA, CFA |
(Source: SID, PersonalFN Research)
In a nutshell...
JM Multi Strategy Fund has failed to impress on every parameter. Despite being a flexi cap multi strategy fund; JMSF has disappointed investors by taking excessive risk and not compensating them by adequate returns. This proves that not all flexi-style funds can add significant value to your portfolio. Hence, it becomes imperative to select a flexi-style fund backed by solid research.
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