A fund that surprised investors

Equity funds were going great guns the last 12 months (at least till the recent bloodbath when the Sensex plunged on May 15).

For the year ended April 18, 2006, an average diversified equity fund gave a phenomenal return of 85.42%.

During this time frame, of 114 diversified equity funds with a history of at least one year, 21 funds pulled off an 'over 100% return'.

That's right -- over 100% in one year!

One of them, ING Vysya Select Stocks, had a one-year return of 101.97%. This made quite a few sit up and take notice.

Why?

Well, if you look at the fund's wretched past, it seemed like an unusual feat.

Check this out before you judge me as being too harsh.

How it fared amongst its peers in terms of ranking

It was not a winner in the first year; in 2001, it was ranked the lowest amongst other diversified equity funds! It climbed a bit in 2002 but was back again at the bottom of the heap the next year!

Since 2004, however, it has shown a substantial climb.

How it fared amongst its peers in terms of performance

In 2002 and 2003, when other funds zoomed ahead, this one struggled to keep pace (see table above).

The year 2004 saw a change in the fund's fortunes. The average return of diversified equity funds was just 25.78%; this time around, this fund came close to the average with 24.29%.

In 2005, it beat the average (see table above).

The returns: Then & Now

Launched in May 1999, the fund had a rollicking start. Known at that time as the ING Growth Sectors Portfolio, its Net Asset Value kept rising on the back of tech stocks. 

Its best performance came in the year 2000, when the tech boom seemed unstoppable.

The highest returns in the history of the fund -- the highest one month return (77.64%), highest quarterly return (174.36%) and highest one-year return (111.28%) -- were declared during that year.

Then, of course, the tech bust happened; that year (2001) was the worst for the fund. Its lowest one month return (-48.19%), lowest quarterly return (-62.56%) and lowest one-year return (-83.37%) were all in 2001.

The dismal performance continued. In its struggle to survive, it even had a change of name. In December 2003, the fund was renamed ING Vysya Select Stocks.

Since 2004, however, the fund has been showing signs of recovery and, in the recent past, it has been galloping forward.

The fund declared its first dividend (25%) on May 30, 2000, when the good times were on. After that, it did not do so again for years (in fact, it could not afford to).

Now, within a year, they have declared two dividends. On August 31, 2005, fund investors got a 15% dividend and on May 31, 2006, a 50% dividend.

Let's look at the returns it has delivered this year, when compared with the average returns of other diversified equity funds as well as the performances of other funds that also featured in the above 100% return list.

The ING Vysya Select Stocks Fund is compared with DSPML TIGER, Franklin India Flexicap, Franklin India Opportunities, HDFC Equity, HDFC Core & Satellite and Kotak Opportunities.

Year to date      

Average return: - 0.8%
Select Stocks: Beat the average to give 1.5%
Peers: Higher than HDFC Equity (0.28%). Lower than DSPML T.I.G.E.R. (4.93%), HDFC Core & Satellite (3.32%), Franklin India Opportunities (3.31%), Franklin India Flexicap (3.30%), Kotak Opportunities (3.30%).

One-month      

Average return:  - 24.12
Select Stocks: Dipped marginally more at - 24.23%
Peers: Franklin India Flexicap and HDFC Equity fell less than the average. The rest dropped even more: DSPML T.I.G.E.R. (- 25.12), HDFC Core & Satellite (- 26.18), Kotak Opportunities (- 26.51), Franklin India Opportunities (- 26.95%).

Three month

Average return: - 14.15%
Select Stocks: Fell by a lower percentage at -11.22%
Peers: All the rest, mentioned above, fell even harder. 

One year     

Average return: 35.15%
Select Stocks: Beat the average of 35.15% by giving a 37.08% return
Peers: All the rest, mentioned above, performed better than this fund. 

A turnaround story?

ING Vysya has not been a fund house that has delivered well. That is why many sat up to notice the Select Stock Fund feature in the list of over 100% returns.

In December 2003, Suhas Naik took over as the head of equities. A stock picker to the core, he brought about some changes and the results could be seen in this fund in 2004.

In 2005, he resigned and Paras Adenwalla took over as Chief Investment Officer. Adenwalla began a drive to get ING Vysya back on track and change the investor's perception about the fund.

During the past year, he has put a greater emphasis on research (he has put a new team in place), software, risk control processes and diversification.

Little wonder that this fund, which languished for a long time, has shown signs of revival and is probably in for a turnaround.

At one time, the fund was a highly risky proposition. For instance, a look at the January 2000 portfolio reveals that around 60% was invested in infotech and the total number of stocks was just 17. A year down the road, January 2001, revealed just 15 stocks with around 68% in infotech.

January 2003, it had 18 stocks but by December that year, it had 42 stocks (a big change indeed!).

Adenwalla says all this is history. "The fund will consistently focus on a maximum of 28 to 33 stocks from now on to ensure ample diversification: not too little, not too much. And, for risk control, no more than 25% in one single sector," he says.

Initially, the focus was on large-caps but from this year onwards, the fund has even tapped mid- and small-caps.