Leading in the middle kingdom

Another one of the SBI schemes makes it to our list and this time it's SBI Magnum Global 94. And even though this is the second mid-cap oriented scheme in our list, we feel it makes sense to have it in your portfolio.

Superior performance

SMG boasts of a superior track record across time periods. In the past year, its risk-adjusted return is among the top five in the category and its past one-year rolling return is 75.3 per cent as against the category average of 51.1 per cent. However, this is largely on account of SMG's focus on mid-cap scrips. It's been a year since there's been a change in fund management.

 Change in mandate and refocusing of fund strategy was also a reason for SMG's performance. Before 2003, SMG did not have any special focus and was like any other diversified equity scheme. Things changed after N Sethuraman joined as the chief investment officer of SBI Mutual Fund. "Before 2003, SMG's portfolio was quite jumbled up. We, then, gave it a focus and termed it as a mid-cap fund. There was no looking back after that," he says.

Though much of the past performance is also attributed to its former fund manager Sandip Sabharwal, SMG has done well in the past year too under its current fund manager and, we feel, will continue to do so under him.

Fund strategy

SMG is a mid-cap-oriented scheme that invests in companies with market cap less than Rs 4,500 crore (Rs 45 billion). As mid-caps are risky, volatile and, at times, lack liquidity, SMG consistently diversifies across 50 scrips.  Says Sinha: "SMG follows a bottom-up stock-picking strategy and concentrates on the large-caps of tomorrow."

However, it can invest in large-cap scrips of today if it so wants, although it is essentially a mid-cap-oriented scheme. As of October 2006, 33 per cent of its corpus was in large-caps and 64 per cent in mid-caps. Its top three sectoral exposures are industrial manufacturing, construction and cement.

On an average the scheme has held nine per cent in cash this year. If the fund manager feels that the market is overheated, or there aren't enough good mid-caps available, he does not hesitate to increase the cash exposure. This strategy works well in a volatile and uncertain market.

Fund manager

SBI Mutual Fund has been in the thick of the action in the past two years. Apart from the change in the fund management, it  entered into a joint venture with Société Générale, a French mutual fund house, which is one of the global leaders.

With its partner's help, SBI MF's risk management processes have attained international quality and have tried to take fund manager risk out of the equation. For instance, earlier, like any other fund house, SBI MF monitored its internal and Sebi-prescribed limits for investments across companies and rectified them if they were breached. Now, it measures risk vis a vis its peers from the industry by actively tracking their portfolios.

Says Sethuram: "This way, we are able to position ourselves better in the market. We constantly monitor our risk and return and try and strike an ideal balance." While its internal risk controls gives enough flexibility to fund managers to perform, it takes care to ensure that risk controls are not breached. Thus, despite the exit of its star fund manager, performance of its funds have suffered little.

Why buy

• One of the two best mid-cap schemes in the past three years 
• Excellent long-term track record
• Can increase cash holdings in turbulent markets