Competition plays an important role in any business. It gives one the motivation to sharpen the edge in order to succeed and prove superiority over its peers.
However, DSP BlackRock Micro Cap Fund has experienced monopoly for years, with no direct competition. Its focus on very high risk oriented micro-cap stocks made it bold and special.No wonder the fund was meant exclusively for very high risk takers, who are fine putting their capital at risk for extra ordinary returns.
Undoubtedly, this multi bagger fund rewarded its investors and soon became popular. Not only its performance, but also the exclusivity of its investment universe attracted investors to the scale where it had to stop taking fresh subscriptions. Result: It has kept investors waiting. Notably, a micro-cap fund is less scalable, due to its focus on under-owned and under-researched stocks that come with lower liquidity.
Post implementation of SEBIs categorization and rationalization norms, DSP Black Rock Mutual Fund classified DSP BlackRock Micro Cap Fund under Small Cap funds category. The fund has been renamed as DSP BlackRock Small Cap Fund.
For the entire list of scheme names changes, do read: Your Mutual Fund Scheme Renamed. What Should You Do?
So instead of the previous mandate, where the fund use to invest at least 65% of the portfolio in micro-cap stocks (it defined micro-cap as 301st stock onwards in terms of full market capitalization), the fund will now be investing at least 65% of its assets in Small cap stocks (251st stock onwards on full market capitalisation basis).
While not much will change for the fund, it will definitely lose its monopoly of being the only fund in its category. The fund will now be competing with another 12 open ended funds classified in the small cap funds category. It needs to be seen if the fund will be able to maintain its track record, under the transformed mandate defined for DSP BlackRock Small Cap Fund.
In this brief analysis, we take a close look at the features and performance of DSP BlackRock Small Cap Fund.
Investment Objective of DSP BlackRock Small Cap Fund (erstwhile DSP BlackRock Micro Cap Fund)
The primary investment objective of DSP BlackRock Small Cap Fund is to seek to generate long term capital appreciation from a portfolio that is substantially constituted of equity and equity related securities of small cap companies. From time to time, the fund manager will also seek participation in other equity and equity related securities to achieve optimal portfolio construction.
It also states that there is no assurance that the investment objective of the Scheme will be realized.
The erstwhile DSP BlackRock Micro Cap Fund had an investment objective to “generate long term capital appreciation from a portfolio that is substantially constituted of equity and equity related securities, which are not part of the top 300 companies by market capitalization.”
DSP BlackRock Small Cap Fund Details
|Category||Small Cap Fund||Style||Growth|
|Type||Open ended||Market Cap Bias||Small-cap|
|Launch Date||14-Jun-2007||SI Return (CAGR)||17.69%|
|Corpus (Cr)||Rs 6,248||Min./Add. Inv.||Rs 1,000 / Rs 1,000|
|Expense Ratio (Dir/Reg)||2.03% / 2.38%||Exit Load||1% (if < 12 Months)|
Portfolio Data as on April 30, 2018.
SI Return as on June 06, 2018.
(Source: ACE MF)
Under normal circumstances, erstwhile DSP BlackRock Micro Cap Fund allocated…
65%-100% - in Equity and equity related securities.
65%-100% - in stocks of micro-cap companies (beyond top 300 companies by market capitalization).
0-35% - in other market cap companies i.e. (stocks within top 300 companies by market capitalization).
0% - 35% in Debt and Money Market Instruments.
0% - 25% in ADRs, GDRs and foreign securities.
Under the revised mandate, DSP BlackRock Small Cap Fund allocates –
65%-100% - in Equity and equity related securities.
65% - 100% - in stocks of small-cap companies (beyond top 250 companies by market capitalization).
0-35% - in other market cap companies i.e. (stocks within top 250 companies by market capitalization).
0% - 35% in Debt and Money Market Instruments.
0% - 10% in Units issued by REITs & InvITs.
Growth Of Rs 10,000, If Invested In DSP BlackRock Small Cap Fund (erstwhile DSP BlackRock Micro Cap Fund) 5 Years Ago
(Source: ACE MF)
Had you invested Rs 10,000 in DSP BlackRock Small Cap Fund five years back on June 06, 2013, it would have grown to Rs 38,388 as on June 06, 2018. Thats a growth rate of a whopping 30.85% CAGR. In comparison, a simultaneous investment of Rs 10,000 in its current benchmark – S&P BSE Small-Cap - TRI would now be worth Rs 29,095 (a CAGR of 23.80%). Over the past 5 years, the fund has clearly beaten the benchmark and that too by a distinct margin.
DSP BlackRock Small Cap Fund: Year-on-Year Performance
* YTD as on June 06, 2018
(Source: ACE MF)
DSP BlackRock Small Cap Fund now has a track record of over a decade. On year-on-year basis the fund has outperformed its benchmark – S&P BSE Small-cap-TRI in 7 out of last 10 calendar years. After showing consistent outperformance over the index from CY 2010 to 2016, the fund recorded underperformance last year i.e. CY 2017 and even year till date in 2018. The funds best performance was generated in CY2010 and CY2014, where it outperformed the index by over 25 and 30 percent points, respectively. The funds returns have been subdued in the last year and half, where it has lagged the benchmark by a noticeable margin.
DSP BlackRock Small Cap Fund: Performance Vis-à-vis Category Peers
|Scheme Name||Corpus (Rs Cr)||1 Year (%)||2 Year (%)||3 Year (%)||5 Year (%)||Std Dev||Sharpe|
|SBI Small Cap Fund||836||43.45||30.16||28.18||35.00||18.04||0.25|
|L&T Emerging Businesses Fund||5,001||42.03||34.80||25.83||--||17.14||0.28|
|Reliance Small Cap Fund||7,207||38.12||30.11||24.00||33.81||19.11||0.23|
|DSPBR Small Cap Fund||6,248||22.19||24.35||23.44||31.78||17.67||0.16|
|Aditya Birla SL Small Cap Fund||2,290||30.17||28.71||23.00||27.25||17.36||0.21|
|HDFC Small Cap Fund||3,647||36.89||28.07||20.63||23.40||16.13||0.25|
|Franklin India Smaller Cos Fund||7,517||23.69||23.22||19.61||30.39||14.36||0.18|
|HSBC Small Cap Equity Fund||683||29.78||23.63||18.83||25.73||20.12||0.14|
|Kotak Small Cap Fund||877||22.66||22.03||18.61||23.50||15.42||0.16|
|Sundaram Small Cap Fund||1,399||28.21||22.43||18.36||27.15||20.82||0.11|
|ICICI Pru Smallcap Fund||182||24.18||19.40||13.11||19.35||14.86||0.05|
|Union Small Cap Fund||339||21.59||15.48||11.14||--||16.41||0.04|
|S&P BSE Small-Cap - TRI||33.51||25.96||17.77||22.33||18.64||0.16|
Data as on June 06, 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.
DSPBR Small Cap Fund has done well over longer-time periods. On rolling return basis, the fund has outperformed its benchmark and most of its category peers over 3 year and 5 year periods. However over the 1 year and 2 year periods, the fund’s performance has been subdued, when compared to its benchmark and the peers in small cap funds category.
On an absolute return basis, the fund has taken a major hit in performance in the last 1 year, where it has lost 1.64% in value (calculated as on June 06, 2018), as against 8.3% appreciation in the benchmark S&P BSE Small-Cap – TRI. Notably, its Small cap peers like SBI Small Cap Fund and HDFC Small Cap Fund have appreciated 23.2% and 22.1% respectively.
It is noteworthy that till now the fund has been taking higher risk of micro-caps, while its peers have been heavy weight on small and mid cap stocks. It needs to be seen, if the fund with revised strategy and a huge corpus of about Rs 6,250 crore is able to keep pace with its peers and recover its losses, or will it disappoint its high risk taking investors who have put their trust on the fund.
Investment Strategy of DSP BlackRock Small Cap Fund
The erstwhile DSP BlackRock Micro Cap Fund had a mandated to invest atleast 65% of its assets in equity and equity related securities, which do not feature among the top 300 stocks (in terms of market capitalisation). The fund also had the flexibility to invest maximum 35% of its assets in stocks, which have a higher market capitalisation (top 300). Notably, after converting to DSPBR Small Cap Fund, it has changed the threshold to top 250 stocks. So it will invest at least 65% of its assets in equities of companies beyond 250 stocks by market capitalization. That adds another 50 stocks to its universe, while it can still continue to focus on stocks it earlier defined under micro-caps.
The fund follows bottom-up approach of stock picking with its focus being on companies having competitive advantage over their peers and their leaders in the industry. As small and micro sized companies are largely dependent on management strategy, the fund managers follow an in-depth analysis before picking stocks for the portfolio.
DSP BlackRock Small Cap Fund - Portfolio Allocation and Market Capitalisation Trends
Being a micro-cap focused fund, DSPBR Small Cap Fund (DSPBR Micro Cap Fund) held its major exposure to small-cap stocks that has been in the range of about 40%-55% of its assets and that to mid-cap stocks in the range of 40%-55% of its assets. The fund usually stays fully invested and has rarely taken aggressive cash call. It has restricted its exposure to debt, cash and equivalent to well within 10% of its net assets.
DSP BlackRock Small Cap Fund – Top Portfolio Holdings
|Holdings (in %) as on April 30, 2018 |
Until a year back, DSPBR Small Cap Fund use to hold a well-diversified portfolio of about 70 – 80 stocks. However, the range over the last one year has increased to 80-90 stocks. Notably, the funds portfolio is currently spread across about 90 stocks. With the increase in its corpus, the fund has been increasing its tail. About 55 stocks have less than 1% exposure in the portfolio. While such diversification may help spread the risk, it also brings along the disadvantages of over-diversification.
The top 10 holdings account for about 31% of the entire portfolio. SRF Ltd., Finolex Cables, Aarti Industries, Atul Ltd. and APL Apollo Tubes are among the top 5 holdings in the funds portfolio. The fund has limited the exposure to its top holding to 4% of its assets.
The sector allocation of DSPBR Small Cap Fund remains skewed towards Engineering and Industrial Products, followed by Chemicals, Textiles, Auto Ancillaries and Pharma. Metals, Consumption, Fertilizers, Financials and Constructions too hold significant weightage in the portfolio. The funds portfolio is now diversified across over 20 sectors, which eliminates the risk of concentration.
Top Gainers and Losers in DSP BlackRock Small Cap Funds portfolio
DSP BlackRock Small Cap Fund prefers buy and hold strategy and holds on to the stock for the long term. The fund has benefited from its holdings in stocks like Sterlite Technologies, Jamna Auto Industries, Siyaram Silk Mills, Chambal Fertilisers & Chemicals, KNR Construction, Majesco, Aarti Industries, Prabhat Dairy, APL Apollo Tubes, Subros, 8K Miles Software Services, Kalpataru Power Transmission, SRF, Sun Pharma Advanced Research Company, Finolex Cables, Maharashtra Seamless and Manappuram Finance, that have shown decent appreciation in the last one year. Notably Sterlite Technologies, Jamna Auto Industries and Siyaram Silk Mills have more than doubled in value.
On the other hand, some of the bets taken by the fund like CL Educate, Max India¸ Advanced Enzyme Technologies, Dhanuka Agritech , Triveni Turbine, Ashiana Housing , Somany Ceramics , Nilkamal, Sanghvi Movers, Clariant Chemicals (India) etc., didnt work in its favour and lost over 20% to 50% in value in the last one year. However, the fund managers are still holding on to these stocks.
Suitability of DSP BlackRock Small Cap Fund
Small cap biased funds invest largely in the small and mid-cap domain and assume large amount of risk. The stocks in this market cap segment are under-owned and under-researched and may be highly volatile during extreme market conditions. Small cap funds are thus suitable only for investors having very high risk appetite along with long-term horizon.
However, one big advantage that comes with small cap investing is their potential to generate high growth rates. Such funds may be considered only by aggressive investors willing to take large amount of risk for higher returns, and for diversifying a small portion of their portfolio towards small and micro-cap space.
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.
Equity markets are unpredictable and we have already seen the change in sentiment over the last couple of months.
In such conditions, what can be your next best move to ensure decent performance of your mutual funds portfolio?
Some smart investors are taking proactive steps to lock their gains and further strengthen the performance of their mutual funds portfolio.
About the Company including business activity
Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.
QIS was promoted by Mr. Ajit Dayal with an objective of providing value-based information / views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.
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Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021. Email: firstname.lastname@example.org Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222
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