Tuesday, April 22, 2008

Premier Fund Taking Investments Again

Standard Chartered Premier Equity Fund, one of the best performing schemes over the last two years, has opened for subscriptions again.

The scheme, closed since July 21, 2007, was reopened for investments on April 15, 2008.

It is the third-best performing scheme in its category over a two-year timeframe. Given this, and an environment in which mutual funds have been falling over each other to raise more money, it is surprising that the scheme was closed for direct investments for almost nine months.

Kenneth Andrade, VP - equities, Standard Chartered Mutual Fund said, "The scheme has been closed for lump sum subscription for sometime, though investors could enter through systematic transfer plan and systematic investment plan."

"The bulk of our investments are in mid-size companies — it takes time for such companies to go to the next level of growth. We have thus positioned a smaller corpus in line with the opportunity that the portfolio of companies presents. We are targeting high growth and there will be at times a higher degree of volatility. Thus comes the need for building up the corpus gradually," he adds.

When a scheme does well for sometime, it typically sees a surge in the amount of money being invested.

As Jason Zweig tells us in the commentary to Benjamin Graham's all-time investment classic, The Intelligent Investor, as assets under management increase, it leaves a fund manager with fewer options to invest money in.

If he decides to retain the money as cash and not invest, the returns of the fund go down. If he decides to invest in a stock which he already owns and which would have probably gone up by then, his returns are again less. The last option is to buy stocks, which the fund manager would not have bought in the first place.

The easiest thing to do in such a situation is to invest in stocks that form a part of the index the scheme is benchmarked against. This ensures that the scheme at least does not generate returns lesser than the benchmark index.

Zweig adds, "As a fund grows, its fees become more lucrative - making its managers reluctant to rock the boat. The very risk that mangers took to generate their initial high returns could now drive the investors away… and jeopardise all that fee income. So the biggest funds resemble a herd of identical and overfed sheep, all moving in sluggish lockstep, all saying "baaaa" at the same time."

Standard Chartered AMC clearly seems to believe in this and hence is not in the race to get more and more investors to invest in it.

So, how much money is the scheme targeting to collect this time around? "We would look to review this once we collect Rs 200-250 crore more from the current level. Since the inception of the fund, we have always adopted a strategy of building a portfolio in stages and would not let the corpus balloon disproportionately since a very large part of the portfolio is invested in smaller businesses," says Andrade.

Investors with an investment horizon of 3-5 years can look at investing in this scheme. Those who want to make a quick buck should stay away, as it is heavily invested in small and mid-cap stocks, which tend to fall more when the stock market as a whole is not doing well.

In the last three months, when the stock market has not done well, the scheme has given negative returns of 24.98% as against negative returns of 22.51% for the category.

"We invest in smaller businesses companies ahead of the growth curve and it takes time for such companies to go to the next level of growth. We are targeting high growth in this scheme, which does subject the investor to some degree of volatility in the short term with a potential to earn good returns over the longer term," says Andrade.

Investors comfortable with systematic investing can also look to invest in the scheme.

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