SBI Magnum Contra: Far-sightedness adds to its value

Although SBI Mutual Fund has been around since 1997, it is only in the past three years or so that it has lost its lethargy and resurrected itself. Thanks to its star former fund manager Sandip Sabherwal, its equity schemes have

consistently been in the top quartile. In terms of returns over the past two years, four of the top 10 equity schemes belong to SBI Mutual Fund.

While it is too early to say whether the new fund manager Sanjay Sinha will be able to sustain the performance in the long run, indications are that the fund house is in stable hands. We feel SBI Magnum Contra Fund makes for a compelling investment option.

Strategy

SMCF is a diversified equity scheme that follows a contrarian strategy. SMCF aims to invest in scrips and sectors that are currently out-of-fashion, but hold potential. Usually, such scrips and sectors are available at cheaper valuations and tend to appreciate when the markets recognise their potential. That's where SMCF aims to make its killing.

A contrarian scheme in many ways  works like a value fund that invests in undervalued scrips. SMCF follows a bottom-up stock-picking strategy. Says Sinha: "Such schemes are best suited for those investors who have a long-term orientation towards equity markets and are willing to remain invested for a period of three to five years for capital appreciation."

SMCF's risk profile has reduced ever since Sinha has taken over the reins of the scheme. For instance, the scheme has reduced its mid-cap exposure to an average of 28.5 per cent of its total portfolio in 2006, as against 53.2 per cent in 2005.

SBI Magnum Contra Fund's scrips concentration has also reduced; in 2005 the scheme's top 10 scrips constituted around 50 per cent of its corpus, in 2006 this figure has dropped to 40 per cent.

Performance

SBI Magnum Contra Fund has outperformed the category average across all time periods and has returned 65.3 per cent in the past five years as against 45.1 per cent by the category average and 34.1 per cent by Sensex.

The scheme scores a superior risk-adjusted return (RAR) and has stood third in the past one year. Some of the biggest success stories of SMCF are Hindustan Zinc, Crompton Greaves and Praj Industries. Sinha was one of the best equity fund managers to come out of UTI Mutual Fund and although he is not as aggressive as Sabherwal was, he should be able to lend consistency to the fund house.

Fund manager

Sanjay Sinha has moved to SBI Mutual Fund from UTI Mutual Fund. At UTI Mutual Fund, Sinha has managed diversified as well as sectoral equity schemes giving consistent, at times moderate, performances. At UTI Mutual, he managed a clutch of equity schemes such as UTI Infrastructure Fund, UTI Petro Fund and UTI Growth & Value Fund. UTI Petro was one of the two petroleum funds in the industry and has returned 43.16 and 26.14 per cent in the past five and three years, respectively.

 Likewise, UTI Infrastructure Fund returned 57.3 per cent in the past two years. Here, too, SMCF returned 63.1  per cent compounded annual growth rate in the past one year as against 50.5 per cent by the category average. In the future, Sinha may not be as aggressive as Sabherwal. But expect a high level of consistency.

Why buy

• Contrarian approach to fund management
• Performance hasn't been impacted even after change in fund management
• Despite a conservative style, it has shown the knack of picking winners