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SBI Magnum Global Fund: Can MNC Stocks Change Its Fortune? - Outside View by PersonalFN

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SBI Magnum Global Fund: Can MNC Stocks Change Its Fortune?
Jul 4, 2018

SBI Mutual Fund has re-categorized SBI Magnum Global Fund as an MNC Fund. As the new scheme name suggests, the erstwhile mid-cap oriented fund will now invest in MNC stocks.

Effective from May 16, 2018, as per its new mandate, the two-decade old fund will now maintain a bias towards multi-national companies listed in India. Earlier, the fund used to invest across equity assets, with a bias towards mid-cap stocks. As the fund moves towards the MNC theme, the exposure to mid-caps will gradually reduce, giving way to globally present large-caps stocks.

The reclassified scheme now has a new fund manager as well. Mr R Srinivasan, who was managing the scheme for nearly a decade, handed over the reins to Mr Anup Upadhyay at the beginning of May 2018.

As on April 30, 2018, SBI Magnum Global Fund had an AUM of Rs 3,600 crore and about 4.7 lakh folios (Mutual fund accounts). With the above changes, SBI Mutual Fund has completely transformed the fund with a new investment mandate. This leaves the investment of lakhs of existing investors at risk with an untested investment strategy, a nil track-record and a new fund management.

The seemingly best option was to merge the scheme with an existing Mid Cap or a Large- &-Mid-Cap Fund. By reclassifying the scheme, the past track record of the fund is irrelevant to the investor. Those who inadvertently compare the scheme's past performance to the MNC benchmark, will get a false picture of performance.

The recent performance of SBI Magnum Global Fund has been highly disappointing. It has underperformed the relevant benchmark and several of its peers. This leads to wonder, whether the categorisation of the scheme was changed to hide this recent underperformance or to turnaround the performance of the scheme by introducing a new mandate.

Whatever the rationale may be, existing investors need to take a call if they wish to continue with an MNC-styled fund. They should be well aware of the risks involved in a themed-styled investment. Themed Funds or Sector Funds have the potential to deliver supernormal returns, but if things don't work out as planned, they could lead to deep losses as well. Are you equipped to take such risk?

In this brief analysis, we take a close look at the features and performance of SBI Global Fund, in its previous avatar.

For the entire list of scheme names changes, do read: Your Mutual Fund Scheme Renamed. What Should You Do?

Investment Objective of SBI Magnum Global Fund

SBI Magnum Global Fund has an investment objective to "provide the investor with the opportunity of long-term capital appreciation by investing in diversified portfolio comprising primarily of MNC companies."

The erstwhile investment objective was to "provide the investors maximum growth opportunity through well researched investments in Indian equities, PCDs, and FCDs from selected industries with high growth potential, and Bonds."

SBI Magnum Global Fund Details

Fund Facts
Category MNC Style Blend
Type Open ended Market Cap Bias MNC
Launch Date 5-May-95 SI Return (CAGR) 14.75%
Corpus (Cr) Rs 3,458 Min./Add. Inv. Rs 5,000 / Rs 1,000
Expense Ratio (Dir/Reg) 1.25% / 2.04% Exit Load 1%
Portfolio Data as on May 31, 2018.
SI Return as on June 20, 2018.
(Source: ACE MF)

From May 16, 2018, the new investment allocation of SBI Magnum Global Fund -

  • 80% - 100% to stocks within MNC space including derivatives and foreign securities
  • 0% - 20% to other equity and equity related instruments
  • 0% - 10% to units of REIT/InvITs
  • 0% - 20% to debt and money market instruments

Under normal circumstances, SBI Magnum Global Fund used to allocate -

  • 80% - 100% to Equity, Partly convertible debentures and fully convertible debentures and Bonds
  • 0% - 20% to Money Market Instruments

Growth Of Rs 10,000, If Invested In SBI Magnum Global Fund 5 Years Ago

Had you invested Rs 10,000 in SBI Global Fund five years back on June 20, 2013, it would have grown to Rs 25,907 as on June 20, 2018. This translates in to a compounded annualised growth rate of 20.96%. In comparison, a simultaneous investment of Rs 10,000 in its current benchmark - Nifty MNC - TRI index would now be worth Rs 26,708 (a CAGR of 21.70%). However, it would be unfair to compare an erstwhile mid-cap biased fund with a MNC index. Thus, we compare the performance to the erstwhile benchmark - S&P BSE MidSmallCap - TRI. An investment in this index, would have grown to Rs 27,280, a CAGR of 22.21%. The scheme has trailed both the indices. But compared to the more relevant Mid-and small-cap benchmark, it has lagged by a wider margin.

SBI Magnum Global Fund: Year-on-Year Performance

SBI Global Fund has a track record of nearly two decades. The year-on-year performance comparison of the fund vis-a-vis its earlier benchmark - S&P BSE Mid-Small-Cap-TRI Index shows that the fund has outperformed the benchmark in 5 out of last 9 calendar years. An underperformance of the fund was as much as 7 percentage points in CY2017. The fund's best performance was generated in CY2014 and CY2016. In these years, the diversified fund delivered an excess return of around two percentage points respectively over the benchmark. The returns have been subdued in the past year. For the year-to-date, the scheme has lagged the new MNC benchmark and delivered a negative return. It has however outperformed the earlier mid-cap benchmark. This change in performance can be attributed to the change in allocation strategy.

SBI Magnum Global Fund: Performance Vis-a-vis Category Peers

Rolling Period Returns
Scheme Name Corpus
(Rs Cr)
1 Year (%) 2 Year (%) 3 Year (%) 5 Year (%) Std Dev Sharpe
Mirae Asset Emerging Bluechip 5,429 27.37 26.91 22.92 30.85 15.42 0.21
L&T Midcap Fund 2,805 32.20 27.72 21.93 29.05 15.69 0.21
Canara Rob Emerg Equities Fund 3,530 28.25 24.24 20.36 29.54 17.30 0.17
Principal Emerging Bluechip Fund 1,838 27.95 25.89 20.01 27.75 16.47 0.17
Kotak Emerging Equity Scheme 3,252 22.15 22.86 19.40 25.90 15.04 0.16
Sundaram Mid Cap Fund 6,278 21.72 22.26 18.90 26.04 16.08 0.15
DSPBR Midcap Fund 5,539 21.37 23.36 18.62 24.84 16.63 0.17
HDFC Mid-Cap Opportunities Fund 20,616 22.74 23.15 18.17 26.24 14.79 0.16
Edelweiss Mid Cap Fund 757 28.15 21.48 17.92 27.14 16.27 0.13
Aditya Birla SL Midcap Fund 2,294 22.21 20.98 17.73 23.34 15.85 0.12
Franklin India Prima Fund 6,602 20.13 20.38 17.00 25.93 13.63 0.14
BNP Paribas Mid Cap Fund 789 22.53 18.44 16.56 24.93 16.80 0.08
SBI Magnum Midcap Fund 3,718 14.02 15.72 16.07 26.45 14.80 0.05
ICICI Pru Midcap Fund 1,523 24.11 20.44 15.03 25.52 15.79 0.10
Tata Mid Cap Growth Fund 658 22.86 17.73 14.97 24.73 16.79 0.06
UTI Mid Cap Fund 4,087 19.90 17.58 14.96 26.86 16.10 0.09
Invesco India Midcap Fund 181 21.94 18.40 14.57 24.01 15.10 0.10
SBI Magnum Global Fund 3,458 18.93 13.30 12.09 21.50 13.83 0.05
Axis Midcap Fund 1,425 23.69 15.10 11.80 21.70 14.98 0.09
S&P BSE MidSmallCap - TRI   29.09 25.33 18.98 22.00 16.35 0.17
NIFTY MNC - TRI   34.57 23.60 16.94 21.54 15.16 0.18
Returns are on a rolling basis and those depicted over 1-Yr are compounded annualised.
Data as on June 20, 2018
(Source: ACE MF)

*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

As seen in the performance table above, SBI Magnum Global Fund had been struggling over the past 2-3 years. It has lagged the S&P BSE MidSmallCap Index by a wide margin. In the 5-year rolling periods, the underperformance has been marginal. But it has been disappointing nonetheless, when compared to other schemes in the category. Even when compared to the Nifty MNC TRI, though not the relevant benchmark, the returns of SBI Magnum Global Fund has been lacklustre.

In terms of risk, SBI Magnum Global Fund has a lower volatility than most of its peers. But by trying to keep risk low, the fund has failed to generated efficient risk-adjusted returns. Hence, the fund falters on this parameter as well.

The top five mutual funds with a similar investment objective and market-cap bias in the 3-year rolling period performance include - Mirae Asset Emerging Bluechip, L&T Mid Cap Fund, Canara Rob Emerging Equities Fund, Principal Emerging Bluechip Fund, and Kotak Emerging Equity Scheme.

Investment Strategy of SBI Magnum Global Fund

The fund will follow a bottom-up approach to stock-picking and choose companies across sectors/market capitalization, which fall under the criteria of MNC.

MNC Companies will be identified as those where:

  1. Major Shareholding is by foreign entity,
  2. Indian companies having over 50% turnover from regions outside India,
  3. Foreign listed Companies.

SBI Magnum Global Fund - Portfolio Allocation and Market Capitalisation Trends

As can be seen in the chart alongside,

SBI Magnum Global Fund was heavily skewed towards mid-cap stocks. The total exposure to mid-and small-cap stocks was as high as 75% at the beginning of the 12-month period. However, since August 2017, the exposure to mid-and small-caps has been gradually reducing. The exposure has fallen to under 50%, and stands at 47% for May 2018. The exposure to large-caps has gradually increased from about 20% to 50% over the same period. The fund does not hesitate to take a cash exposure when needed. The allocation to cash & debt has ranged between 2%-10% over the past one year.

SBI Magnum Global Fund - Top Portfolio Holdings

Top 10 Stocks
Stocks % of Assets
Maruti Suzuki India 7.41
Colgate-Palmolive (India) 6.68
P&G Hygiene & Health Care 4.68
Infosys 4.09
Westlife Development 3.97
Grindwell Norton 3.89
Balkrishna Industries 3.85
Schaeffler India 3.76
Goodyear India 3.33
Divis Laboratories 3.24
Top 5 Sectors

Over the past few months, stocks such as Maruti Suzuki, Colgate Palmolive, Infosys and Goodyear Tyres have made it to the list of top holdings. These are among the 11 other stocks added in the portfolio between April-May 2018. Some prominent industry names on the list include Hindustan Unilever, Sanofi, Cipla and Pfizer.

The fund already had exposure to MNC-themed stocks such as Procter & Gamble Hygiene & Health Care, Westlife Development (franchise owner of McDonalds) and Grindwell Norton (a subsidiary of Saint-Goblain). Out of the 41 stocks on the list, the top 10 stocks account for 45% of the total portfolio. The top 5 stocks alone account for one-fourth of the total portfolio.

Among the top sectors, Consumer Non-Durable stocks take the lead with an allocation of 15%. Pharma and Auto Ancillary stocks follow behind with a weightage of around 10% each. The fund also has a decent exposure to Industrial Products and Auto stocks as well. The exposure in terms of sector allocation is well diversified, while the assets may be skewed to a limited set of stocks.

Top Gainers in SBI Magnum Global Fund's portfolio

Out of the 41 stocks in the portfolio, about 25 stocks have been held for 12 months or more. About 13 of these stocks generated a return in excess of 10% over the past 1 year. Among the top stocks in the portfolio with the maximum return over the past were Westlife Development, Divis Laboratories, Page Industries, Balkrishna Industries, and Whirlpool Of India. These stocks rallied 84%, 80%, 76%, 55%, and 32% over the past year.

About seven stocks in the portfolio declined by 10% or more over the past year. Among the stocks that declined the most over the past year were Eveready Industries, Blue Dart Express, Precision Camshafts, and Allcargo Logistics. These stocks declined 22%, 22%, 23%, and 29% respectively.

Suitability of SBI Magnum Global Fund

Given the sound corporate governance observed by MNCs and their strong footprint in the Indian market; mutual funds too went gung-ho on them. UTI Mutual Fund was the first fund house to launch a dedicated fund investing in MNC companies - UTI MNC Fund, back in October 1998. A year later, in December 1999, Aditya Birla Sun Life Mutual Fund launched a similar scheme on MNC theme-Aditya Birla Sun Life MNC Fund.

SBI Global Fund is the newest member to join this clan. However, don't make the mistake of comparing the past performance of SBI Global Fund with other MNC funds. It will be like comparing apples to oranges. Only the future will tell how SBI Global Fund performs vis-a-vis its peers.

MNCs operate across the globe through their subsidiary companies. They are usually preferred by investors for their efficient management, transparent operations, adherence to global standards and competent product offerings. Furthermore, MNCs pay higher dividends, as it is a source of sending share of profit back to the parent company.

Sectors such as Pharma and FMCG have been dominated by the MNCs historically. Many MNCs have topped the preferred list of investors. Be it Colgate Palmolive or Hindustan Uniliver or a pharma company GlaxoSmithKline, most of them have become familiar names in India.

When compared to the broad market indices, there have been periods where MNC Funds have done extremely well, and periods where they have lagged. This is the very nature of sector-biased or theme-biased portfolios.

Pharma and FMCG sectors have been the major wealth creators over last one decade and MNC dedicated funds have immensely benefited from their exposure to these sectors. However, Pharma stocks have come under pressure in the recent few years, dragging down the returns of such schemes.

PersonalFN has always believed that playing a particular theme or investing in thematic funds is dangerous. Undoubtedly, MNCs bring with them global experience and offer strong parental support to their subsidiaries but they may have limitations too. Investors should look for funds that have done well with a diversified portfolio.

If you plan to invest in equity-diversified mutual funds, do ensure that the investments are in line with your financial goals. If you are not sure about how to align these schemes with your tax planning or financial goals, do consult your financial planner or investment advisor.

Note: This write up is for information purpose and not a recommendation to buy or sell the mutual fund scheme. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor.

Editor's note:

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This article first appeared on PersonalFN here.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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