A Good Opportunity

The upsurge in PSU stocks has enabled the fund to comfortably outperform the markets

Background: DSP Merrill Lynch Opportunities Fund seeks to generate long-term capital appreciation by investing in selective sectors of the market. This gives the fund a higher risk-return profile than a diversified equity fund. But this is lower than in a pure sector fund. Participation in the fund requires a minimum investment of Rs 1000 and is subject to a two per cent entry load.

Performance: Since inception, the fund's annualised return of -5.72 per cent is slightly better than the Nifty's -13.86 per cent. Most of these have come in 2002 when the fund strongly outperformed both the Index and the category average. Prior to this the fund had a bad year in 2001 when it underperformed the Index as well as its peer group.

Portfolio: DSP Opportunities Fund has a mixed record in spotting the performing sectors in the market. In 2000, technology accounted for nearly 40 per cent of its portfolio. The fund held topline companies along with some more speculative ones and ended the year in line with the Index.

2001 turned out to be a bad year. For a better part of the year technology stocks moved southwards and the fund's NAV followed suit. With a fourth of its portfolio in technology, returns took a hit when the markets tanked post-Budget.

The absence of defensives such as FMCG and pharmaceuticals in the middle of the year also proved costly. When the markets tanked post 9/11 the fund had seven per cent exposure to technology. A larger exposure to PSUs, particularly those of the energy sector, helped the fund strongly outperform the Index in the subsequent rally till the Budget. In spite of this, the fund ended the year lower than the Index.

The seeds of the fund's recovery were, however, sown. The induction of PSU stocks gave the NAV a boost till Budget time.

Post-Budget when the markets fell, the fund did better. Between February end and October end, while the market lost 22 per cent, the fund was down by only 15 per cent. At the end of the year when IT stocks recovered, the fund was at the right place at the right time. The presence of these along with auto stocks helped it keep pace in the last quarter as markets recovered.

Outlook:The fund has managed to find good opportunities in the past year. If this performance continues, it can play the role of a kicker to boost returns of an equity fund portfolio.