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Indian funds occupy seven of the top 10 spots in the league table of leading small-cap funds AsiaThanks to some clever stock-picking amid investors’ growing appetite for cheap shares With the ability to deliver multi-bagger returns.
Analysis of around 300 Asian small-cap schemes reveals DSP BlackRock Micro Cap Fund Leading the charge giving 82% returns over the previous year. Managed by Vineet Sambre, who has been with DSP BlackRock for a little over three years, the fund has outperformed the BSE small-cap index’s growth of 58% since August 2009. The 30-share benchmark Sensex has gained 20% during this period. period while the broader BSE 500 index is up 27%.
Other six schemes- Sundaram BNP Paribas Select Small Cap, HSBC Small Cap, JP Morgan small companies, Franklin India Prima, Franklin India Small Companies and ING Vysya Cube – has given investors returns between 44% to 57% on a 12-month basis. These schemes manage anywhere between `46 crore and `954 crore.
Four of these funds were launched during the peak of the previous bull run, between January 2007 and March 2008, and investors in them also faced a steep drop in their initial investments.
Mutual fund tracking firm Value Research called the DSP fund an influential product in the entire “small-cap universe”, noting that the stocks it held “were credible, known names and there is a conspicuous absence of momentum in the portfolio.” “. The fund’s holdings include companies with high returns on equity and strong leadership in their industries.
Value Research CEO Dhirendra Kumar said the close-ended nature of some of these funds helped them adapt to the weather Market Turbulence “These funds did not face redemption pressure during the decline phase. This helped them to invest for the long term.”
DSP Fund went open-ended in June this year and Fund Manager Mr. Sambre has kept around 10% of his ₹311 crore corpus in cash to meet potential redemptions and take advantage of any market opportunity.
There are 10 small-cap funds in India, which manage around Rs 3,450 crore in stocks. This is just 2% of the total AUM under equity schemes.
Market watchers say that in the past one year, many large-cap stocks have become fully priced and relatively unattractive, so the rally shifted to small caps. Stocks such as cooler maker Symphony and luggage maker VIP Industries have led the small-cap charge in the market. Ahmedabad-based Symphony has grown by 830% in the last 12 months while VIP has grown by 548%. In comparison, the top two gainers on the Sensex – Tata Motors and Tata Consultancy Services – are up 135% and 61%, respectively.
“Many small caps with excellent businesses were trading at extremely low valuations – many below book value and dividend yield of 5-7%,” says Deven Choksi, chief executive officer, KR Choksi Shares & Securities. “They were just heavily bought.”
Even though small-cap funds have given solid returns in the past one year, experts say investors should be cautious and have only 10-15% of their equity exposure in such funds or companies. This is largely due to the volatile nature of their stock performance.
“Investors must have a strong stomach and ability to do so”
Such funds face steep downside,” says Mr. Kumar at Value Research.
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