Investors having a long-term objective can take a view on Reliance Diversified Power Sector Fund. The fund was launched in the first half of 2004 when the bull-run was starting to pick up. It has outperformed in the diversified category in the last one year by giving positive returns. In comparison to BSE Power index it has given similar returns in the bull period but outperformed in the bear phase. This is reflected in the last one-year returns as the power index has grown by 14.1% returns and 10% by the fund. In the 2007 calendar year, the fund has given outstanding returns of 137.48% similar to the power index. If one looks at the bear market period started from January 8, 2008, till date it has outperformed much better by giving -34% and -47% by the power index. The out performance in the bear phase is reflected in the beta, which is at 0.85. It means on -10% returns given by the benchmark index, the fund would give -8.5% returns, which is said to be a better fund.
Strategy
One of the important reasons for the fund to remain stable has been the strategy to keep cash at the higher level, which is at 28% of the total asset size as on August 29, 2008. However, one can take a cue from the past that the company is maintaining a cash level more or less at a similar level (in the range of 25%-31%). One of the reasons for huge cash in hand could be the higher asset size of Rs 5,080.39 crore as on date. In a down market, fund houses get very good opportunities to invest in stocks and having idle cash of more than Rs 1,000 crore can be utilised efficiently.
Portfolio composition
Most of the exposure is into large cap ones. Due to its focussed objective, it has taken maximum exposure only in power and its related sectors like oil, steel, engineering, transformers, etc. It also has exposure in high growth sectors like housing and construction. The year 2007 was very good for power-related stocks, which outperformed the benchmark (Sensex) giving outstanding returns.
However, one should not forget, being a niche/sector-focussed fund comes into a high-risk high fund category. Also, the high returns delivered may not replicate in the future and take time pick up due to high valuations and other related concerns. Nonetheless, the huge demand for power and to achieve the targeted capacity is a positive signal for the sector, making this fund attractive from a long-term point. One can know from the past portfolios that the fund manager tries to keep its portfolio more or less similar to the BSE Power index. With continuous addition, deletion and change in the proportionate holding in the stock every month. This may be the reason for a higher portfolio turnover of 78%. The fund is managed by Sunil Singhania.