An analysis of nearly 300 Asian small-cap schemes shows that DSP BlackRock’s micro-cap fund leads the charge, delivering 82% returns over the past year. Managed by Vinit Sambre, who has been with DSP BlackRock for a little over three years, the fund has also outperformed the BSE Small Cap Index’s 58% gain since August 2009. The 30-share benchmark Sensex has gained 20% during the period while the broader BSE index is up 527%.
The other six schemes – Sundaram BNP Paribas Select Small Cap, HSBC Small Cap, JPMorgan Smaller Companies, Franklin India Prima, Franklin India Small Companies and ING Vysya CUB – returned investors between 44% and 57% over 12 months. These schemes manage anywhere between Rs 46 crore and Rs 954 crore.
Four of these funds were launched during the previous bull run between January 2007 and March 2008, and investors in them also had to face significant reductions in their initial investment.
Mutual fund tracking firm Value Research called the DSP fund an effective product across the “small-cap universe”, noting that the stocks held by it are “credible, well-known names and there is a distinct lack of movement in the portfolio”. The fund’s holdings include companies with high returns on equity and strong leadership positions in industries.
The closed-end nature of some of these funds has helped them weather market turbulence, said Durendra Kumar, executive director of Value Research. “These funds did not face redemption pressures through the drawdown phase. This helped them invest for the long term,” he said. he said. The DSP fund opened in June this year and fund manager Mr. Sambri has kept about 10% of his $311 million in cash to meet potential redemptions and capture every market opportunity.
There are 10 small-cap funds in India, which manage around Rs 3,450 crore in stocks. It accounts for only 2% of the total AUM under equity schemes.
Market experts say that as most large-cap stocks have become fully priced and relatively unattractive over the past year, the rally has shifted to small caps. Stocks such as cooler maker Symphony and luggage maker VIP Industries have led the small-cap charge in the market. Ahmedabad-based Symphony has grown 830% while VIP has grown 548% in the last 12 months. In comparison, the top two gainers in the Sensex – Tata Motors and Tata Consultancy Services – are up 135% and 61% respectively.
“Many of the small caps with better business were trading at incredibly low valuations – many were trading below book value and at dividend yields of 5-7%,” says Dion Choksi, CEO, KR Choksi Equities and Securities. “They’re just massively overbought.”
Although small cap funds have delivered strong returns in the past one year, experts say investors should be cautious and have only 10-15% of their investment in such funds or companies. This is largely due to the volatile nature of their stock performance.
“Investors must have a strong stomach and ability
Resist significant drawdowns in such funds,” says Mr. Kumar at Value Research.
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