JM HI FI is a typical momentum offering

JM HI FI is a typical momentum offering that tends to dramatically outperform or underperform. When it does do well, it bolsters investors' confidence. But when it slumps, it probably gives them sleepless nights. Take a look at these figures to get the point. In the March 2007 quarter, the category fell by an average of 6 per cent while the Nifty, by 3.65 per cent. JM HI FI fell by 18.50 per cent! But when the category gained 14 per cent in the September 2007 quarter, and the Nifty 16.28 per cent, this fund stomped ahead with a gain of almost 26 per cent.

Fund manager Sandeep Neema maintains an extremely focussed portfolio that has averaged at just 24 stocks in the past one year. Moreover, the portfolio is dominated by mid- and small-cap stocks. The fund's narrow mandate is basically limited to housing, infrastructure and financial services (the name itself implies that). He tends to sport a hefty construction stake (which has gone as high as 51.42 per cent) and, at times, remains fully invested in equity. When all these factors are viewed in totality, it's obvious that the fund courts a significant liquidity and valuation risk.

Neema looks for companies that enjoy robust earnings-growth but claims that he won't pay a high price for that growth. To his credit, he has succeeded. Hindustan Construction, IVRCL Infrastructure & Projects, Unitech, Peninsula Land, Orbit Corporation, Kalindee Rail Nirman Engineers, Emco, BHEL, IDBI, IDFC and Bharat Bijlee are some of the companies in which he made a well timed entry and, in some cases, an exit too. But where he did miss the boat to some extent was the rally in the metals sector last year. The BSE Metal index delivered great returns in the last three quarters of 2007 while this fund saw its allocation slip from 28.38 per cent (February 2007) to 10.61 per cent (August 2007).
While Neema does not adhere to a buy-and-hold strategy, neither does he jump in and out of stocks. He exits the moment he has achieved his price objective. As a result, a number of stocks make an appearance for just a few months.
The fund's recent performance must definitely be trying investors' patience. It's year-to-date return (as on March 31, 2008), was -41.21 per cent against a category average of -28.29 per cent. While such a ride could strike fear into the hearts of the most determined investors, it is not a sign that the fund has run out of gas. In fact, it comes with the territory. When infrastructure and real estate stocks did well last year, the fund beat the category average in the last three quarters of 2007. But with the financial services and real estate sectors being out of favour now, the fund has considerably fallen.
By and large, the fund remains inappropriate for most investors. If you can handle a rocky ride and are bullish about these sectors, go for it. But do ensure that it is a small part of your overall diversified portfolio.

Banking ETF

Here's a surprising move from Reliance Mutual Fund. The AMC has launched a banking ETF (Exchange Traded Fund). The launch comes as a surprise because the AMC already runs the largest actively managed banking fund, Reliance Banking that has an AUM of Rs. 938 crore. Though Reliance Banking as done well with a total return of 41 per cent per annum, the fund has barely managed to beat its benchmark in its 5-year life.

ETFs are Index funds which trade on the market like shares. The Reliance Banking ETF will deliver returns exactly like the Index, but minus the expenses. Like any index fund, the fund will have lower expense.

The fund will track the CNX Bank Index, which has 12 liquid and large Indian banking stocks. Since inception, its return has been 27 per cent on an average. As on April 30, 2008, its constituents included -- State Bank of India (27.85 per cent), ICICI Bank (24.3 per cent), HDFC Bank (13.43 per cent), Axis Bank (8.21 per cent), Kotak Mahindra Bank (6.78 per cent), Bank of India (4.47 per cent), Punjab National Bank (4.31 per cent), Bank of Baroda (2.85 per cent), Canara Bank (2.42 per cent), Union Bank of India (2.01 per cent), IDBI (1.88 per cent) and Oriental Bank (1.36 per cent).

The scheme's asset allocation will be 90 per cent in the equities of its Index and rest 10 per cent in other equities or debt instruments.

Similar Funds:

This will be the second ETF to track a bank index. The first was Benchmark's Baking BeES, which has delivered 36 per cent return since its launch in May 2004. There are two relatively new ETFs as well, which track the PSU Bank Index - Kotak PSU Bank ETF and PSU Bank BeES.

Scheme Details:

Issue Opening Date : May 12, 2008Issue Closing Date : May 30, 2008Fund Category : Exchange Traded FundFund Type : Open-end, Exchange tradedBenchmark : CNX Bank IndexCost : The fund has 2.25per cent entry load during NFO. Investors will incur brokerage on sale and purchase after listing of the ETF.Minimum Investment : Rs 5000(During the NFO)