4th oct pick of the fortnight

dsp merrill lynch opportunities fund
NAV Rs 48.23

If you want to build a long-term portfolio of equity mutual funds, DSP Merrill Lynch Opportunities Fund (DMLOF) is a must. Consistency in returns, which are also above the industry average, stability and liquidity through large-cap scrips in its well diversified portfolio, are only some of the reasons to give this fund a good look.

Good performance

DMLOF was launched in April 2000 when the technology sector melted and equities collapsed. In its first year, the scheme lost 31 per cent, but it has not looked back since. In the past five years, DMLOF has returned 50 per cent against the category average of 42 per cent. As per Outlook Money’s latest annual mutual fund rankings, And the Winners Are... (15 May), the scheme was ranked seventh out of a total of 53 diversified equity schemes, earning four stars.

A measure of a fund’s consistency is its one-year rolling returns (the average of one-year returns over the past two-year period). DMLOF returned 61 per cent against category average of 53 per cent.

Fund strategy

DMLOF is an aggressively managed fund in search of growth opportunities. This is in contrast with its other diversified equity scheme, DSP ML Equity Fund, which believes in a buy-and-hold philosophy. In its search for companies with the potential for high-earnings growth, in sectors with significant growth opportunity, DMLOF invests in scrips across market capitalisation. Thus, during 2005, when mid-cap scrips were performing well, DMLOF had an average of 30 per cent of its portfolio in such scrips.

Of late, DMLOF has trimmed its mid-cap exposure to around 15 per cent. This would seem a good move for turbulent markets, when large-cap scrips tend to be more stable and liquid than mid-caps. The scheme is well-diversified, and consistently holds an average of 60 scrips.

DMLOF holds stocks for an average of one year, and the fund manager aims to achieve his price target within this period. If scrips achieve the price target earlier, the fund manager exits. The scheme’s one-year standard deviation on weekly returns (a measure of risk; how much its returns fluctuate from its average for the same year) is 3.8, slightly lower than category average of 3.9. DMLOF keeps around 5 per cent of its portfolio in cash to meet redemption pressures.

Portfolio

The scheme’s top three sectors are software, industrial capital goods and products and cement. The fund manager believes that large-sized Indian technology companies are well-placed to bag bigger international orders. Accordingly, DMLOF’s top holding is Infosys, and it has also increased its exposure to Satyam in August 2006.

The fund manager believes that increased government spending in the infrastructure sector will lead to improved order books for manufacturers of heavy machinery and equipment. Two prominent DMLOF holdings belong to this space, namely BHEL and L&T. The fund is also bullish on the cement sector as it expects cement prices to go up within the next one year.

Kayezad E. Adajania




Peer Comparison Fundfacts

Fund manager Soumendra Nath Lahiri
Min investment Rs 5,000
Entry load 2.25%
Exit load Nil
Launch date 10-Apr-00
Corpus Rs 1,145.3 cr
Benchmark Nifty

returns (%)
Scheme Name NAV 1 Year 3 Years 5 Years
DSP ML Opportunities 48.2 44.3 50.6 50
Birla India Opportunities 44.6 32.2 37.8 45.2
DBS Chola Opportunities 22 18.5 31.4 22.3
Reliance Equity Opportunities1 18.4 46.8 NA NA
Tata Equity Opportunity2 50.5 33.3 53.4 43.2
Nifty 41.4 34.8 27.3
1Launched after 8 Sept 2003; 2Launched after 8 Sept 2001
NAV and returns as on 8 Sept 06; Source: Mutualfundsindia.com