Standard Chartered Premier Equity Fund – A quasi Venture Capital Fund

 

 

Standard Chartered has been a relative new entrant to the bustling equity mutual fund market. Out of the offerings their India specific funds the Standard Chartered Premier Equity fund qualifies as a fit Investment candidate.

 

The fund has been positioned as a high risk high return product which would invest in smaller undiscovered stories available at small market caps. Although their over all returns show nothing to substantiate these claims the fund has been actively identifying and actually buying a few great companies over the last one year. Over the past 10 months or so  fund Manager’s best picks have been Shree Renuka Sugar (went up 6 times after purchase) while  Emco, Areva T&D, TV 18 have doubled over the same period. While the fund Mangers have booked partial profits in some of these they remain more or less confident about the long term growth plan of the others.

 

Since the fund is invested in mid to small cap companies it experiences greater volatility and the N.A.V tends to swing a bit more in comparison to other funds.

 

My discussion with Mr. Nawal Bir Kumar the Managing director of Standard Chartered AMC has mostly revolved around this particular product. Mr. Kumar talks about this fund as a quasi venture capital fund looking to invest into ideas that have just left the drawing board stage. He talks about how small market cap companies have translated themselves into being big winners and how Standard Chartered Premier Equity fund is a must have for each investor. In fact this fund also happens to be a part of Nawal’s personal portfolio.

Quick review of the various parameters of the fund
Particulars	Details	Remarks
Fund PE	26.79	The trailing PE of the fund is on the higher side because small stocks in high growth businesses generally trade at higher PE’s
Price to Book Value	4.65 times	For growth companies it is futile to look at a Price to book so we will give this portion a skip.
Average Market Cap	Rs 1003.86 crores	This is in line with the fund’s stated policy. A small market capitalized portfolio will be hit in turbulent times but it would outperform all other stocks over a longer period of time..
Net Assets	Rs 207.41 crores	A small corpus with restricted entry means that the fund would not have to keep money to meet redemption pressures and also keep impact cost in check
Sharpe Ratio	N.A	It is generally not advisable to calculate these two ratios for funds that are less then a year old.
Beta	N.A

 

 

A look at some of the companies in the fund’s portfolio makes a serious case for investing. Most of these companies have been battered during the recent sell off but over a longer period of time these small cap companies that will turn into larger caps.A few my falter by the wayside but the returns from the others will far outweigh the losses from the few.

 

• Stocks like TV-18, NDTV and ZEE TV will immensely benefit once addressability or pay TV is introduced in India,
• The huge pipe line that will be put up covering the country will benefit Maharashtra Seamless. The company also benefits if steel prices fall.
• Pantaloon Retail, Crew Bios, Bombay Rayon will play on the consumer wallet,
• Areva T&D, RPG Transmission, EMCO & PTC are plays on the power generation distribution side.
• Nagarjuna Construction and Mahindra Gesco will be players in the  Construction and realty spaces
• ENIL will be a leading player in the FM Radio business
• Companies like Glaxo Smith Kline, Deccan Chronicle and Centurion Bank are good solid companies providing stability to the overall portfolio. 
• Last month the fund bought in stocks like Nahar Spinning, Nahar exports, and ENIL.

 

Company Value (Rs crs) Number of shares % of Holding    Areva T&D  13.11 242,530 6.32       Maharashtra Seamless  11.41 363,689 5.50       Deccan Chronicle Holdings  10.01 295,906 4.83       Emco  9.42 218,850 4.54       Shree Renuka Sugars  9.28 105,407 4.47       Television Eighteen  7.46 144,108 3.60       Bombay Rayon Fashions  6.84 393,917 3.30       Sintex India  6.77 443,566 3.26       RPG Transmission  6.21 610,521 2.99       Centurion Bank of Punjab  6.14 3,007,353 2.96       Vimta Labs  5.66 341,151 2.73       Pantaloon Retail  5.40 40,117 2.61       Spice Jet  5.15 1,071,009 2.48       Nitco Tiles  4.88 301,484 2.35       New Delhi Television Ltd  4.23 243,514 2.04       Nahar Exports  3.92 542,294 1.89       GlaxoSmithKline Consumer    Healthcare  3.64 72,163 1.76       Wyeth  3.15 60,491 1.52       CCL Products India  2.89 73,490 1.40       Nahar Spinning Mills  2.81 125,893 1.35       Indo Asian Fusegear  2.49 172,269 1.20       Entertainment Network India  2.16 112,699 1.04       PTC India  2.07 413,679 1.00

The temporary drawback with the fund is its asset mix. It holds  67.59% of its portfolio in equities only. The balance portfolio is held in cash and debt. It is sinful for a Mutual fund to hold money in cash. Investors give money to Fund Managers to invest which they should do. If an investor is bearish on the market or thinks that he ought not to be invested he has can and does put in his redemption request.

 

Now look at it this way:

• An investor wishes to have 40% exposure to equities out of his total investible asset  of Rs 10,00,000
• He puts in Rs 4,00,000 (40% of Rs 10,00,000) into an equity mutual fund.
• The fund Manger in order to time the market invests only 80% of the fund’s asset into the stock market.
• Effectively the investor’s exposure to equities has been decreased to Rs 3, 20,000.
• Therefore an investor who thinks he has a 40% exposure to equities actually ends up making a 32% exposure to equities.
• This hurts financial planning.
• And finally Time and not timing is important in the market.

 

“A person who is invested 50% is likely to miss most of the up move when the market turns “– Peter Lynch

 

 

Recommendation: Inspte of the temporary drawback of being underinvested  Standard Chartered Premier Equity fund is a new concept, trying to catch undiscovered potential multibaggers and investors should load on to the fund inspte of the fund being underinvested. It has been positioned as a multibaggers mutual fund.

 

 

I do have financial interest in this fund and my clients are also be invested in the Standard Chartered Premier Equity Fund.

Edited by basant - 28/Aug/2006 at 1:22pm

Maybe they do not give a higher commission to icici. Yes you could try from the stan chart branches.

Friends this is my first post all though I have been following this community for the last few months.Yes ABG heavy Industries and Alphageo sure look interesting  not followed Kaveri and Goldstone.

Question is about timing and whether any manager has been able to time it or not. Almost all fund managers fail to deploy the cash at the right time and that is because the right time is known in retrospect only.