Birla Capital International Asset Management Company, a joint venture between Birla Group (60 percent) and Capital Group Group Companies Inc (40 percent) manages Birla Advantage Fund. Besides Birla Advantage, Birla Capital International AMC manages three domestic funds - Birla Income Plus, the largest open-end income fund and Birla Cash Plus a short term debt fund and Birla Taxplan, a tax planning fund. The AMC is also a sub fund manager for the offshore fund, India Advantage Fund.

Launched in February,1995, Birla advantage mobilised Rs 162 crore from around 90,000 investors during the initial public offer. The collection of other open-end growth funds launched in early 1995 was not as impressive. However, since inception, the fund has been under constant redemption pressure due to poor market sentiment.

While the net outflow from the fund was not as dramatic as other open-end equity funds till March this year, Birla Advantage saw a net outflow of Rs 46 crore during the first quarter of fiscal 1998-99. The unit base of the fund was down over 45 per cent despite it being the top performer in the quarter. It is an irony that funds are paying a price for their performance. The redemption bug does not stop at Birla Advantage. Alliance '95 was faced with a similar situation earlier this year. After an initial underperformance, Alliance '95 witnessed a remarkable turnaround in 1997. As soon as the superior performance was visible, the fund faced ouflows. The net assets of the fund was down from Rs 48 crore inSeptember 1997 to Rs 36 crore in March, 1998 despite an NAV appreciation of 50 per cent in 1997. On the contrary, funds with mediocre performance have been relatively stable.

Before withdrawing from a fund that has witnessed a turnaround or figures in the toppers list, it is important to evaluate its past performance, the present strategy of the fund manager and the its future potential to reap the benefits of the investment.

Performance

Birla Advantage has been on top of the performance table for most of 1998. In Calendar, 1998, the fund has appreciated by 30 per cent while the BSE Sensex and the National Index have fallen by 20 per cent and 17 per cent, respectively. Though the fund was dilly-dallying in the first two and a half years since launch due to the bearish market, the fund was successful in guarding its assets. Till 1998, BAF was seldom a topper, but consistently figured in the top five list. The fund has outperformed the major broad based market averages over mosttime-periods.

Portfolio Strategy

Compared to its stated investment strategy of a mix of growth and value investing, the fund has consistently followed a growth oriented strategy. The emphasis has been more on companies with a visible earnings potential. Though the fund follows a bottom-up approach while selecting stocks, the fund manager has strong sectoral preferences. Except during the initial phase, the fund has almost always maintained an above 85 per cent exposure to equities. In the past quarter, the fund has divested almost all its debt holdings to meet redemptions.

Portfolio Statistics

During the first quarter of fiscal 1998-99, the fund has substantially increased the level of concentration. In June, the top ten scrips accounted for 66 per cent of the portfolio up from 49 per cent in March. Further, the top twenty holdings account for 96 per cent of the portfolio at the end of the quarter, up from 70 per cent in March. The fund is almost completely deployed in equities withinsignificant exposure to debt. The equity portfolio has large-cap tilt with 12 companies in the portfolio with a capitalisation of over Rs 1000 crore. The fund also has a fair sprinkling of mid-cap liquid stocks. Representative of a highly growth oriented portfolio, Birla Advantage has a weighted average price earning ratio of 57 and a weighted average price to book value of 26.46.

Sector Exposure

The fund is overweight on high growth industries and is highly skewed towards the software industry with a whopping 40 per cent exposure. In fact, the fund has hiked exposure to infotech stocks from 15 per cent in March to current levels. The next preferred sector is the fast moving consumer good (FMCG) where it has a 23 per cent exposure. The pharmaceutical industry account for 10 per cent of net assets. Put together, the top three sectors account for 75 per cent of the portfolio. Within these sectors, the fund has a fairly diversified portfolio. Generally, the fund clings to industryleaders.

Infotech sector holdings include Wipro, Infosys Technologies, NIIT and Satyam Computers. In the FMCG sector, the fund is invested in Hidustan Lever and Nestle apart from Indian Shaving products, Pond's and Archies Greetings. Among the pharma companies, the fund is bullish on Smithkline Beecham, Pfizer and Novartis. The fund manager is confident that the key fundamentals of these companies are sound and is optimistic about price appreciation in these scrips.

In light of the portfolio strategy its current sector exposure, the fund must continue to buck the overall bearish trend. However, it goes without saying that the fund is vulnerable to factors affecting the software industry apart from FMCG and Pharma. Further, continued redemption pressure is likely to make the fund unstable.

Today, Birla Advantage is one of the best equity funds available in the market. Investors in the fund should consider staying as it is likely to continue its superior performance. However, the fund will remainvolatile.

For new investors, an ideal way to enter the fund could be a systematic investment plan. The minimum investment is Rs 1000 and in multiples of Rs 500. The fund is sold at NAV. For redemption within two years, the fund charges an exit load of 2 per cent.

-- Value Research