INVESTORS in US-1995 can continue to hold on to their investments. US-95 has delivered attractive returns in the past three years. Important, its portfolio is now clean of non-performing assets, substantially. As such, this may not be the right time to pare down exposures to the fund. Fresh investments, however, need not be considered for now. The net asset value per unit of the growth and income option are Rs 19.74 and Rs 13.77 respectively.
Suitability: US-95 is an aggressive balanced fund. Its investments in the past have been concentrated on stocks of smaller companies and debt instruments of unlisted and lower rated companies. The fund also follows a tactical asset allocation strategy constantly shifting the balance between equities and debt. This pegs the risk level involved in the fund at a fairly high level. Investors deciding to continue invested should consider this high-risk profile of the scheme.
Review: US-95 delivered returns of less than 6 per cent in the last 12 months. However, even after such a dismal performance, the three-year compounded annual return is close to 20 per cent for the fund. Such high returns are because of the fund's aggressive orientation. However, the flip side is the balance-sheet of US-95 bears the scars of such an aggressive strategy. Provision for non-performing assets were close to 13 per cent of the NAV at the end of May 2002.
In fact, there was a large provision for NPAs in the year ended June 2001. Provisions increased to Rs 28.80 crore at the end of December 2001, compared to Rs 8.26 crore at the end of December 2000. A provision of Rs 4 crore was charged to the half-year ended December 2001 suggesting that a bulk of the provision was made in the year ended June 2001. After such massive provisions, the debt portfolio of US-1995 appears relatively clean.
In terms of portfolio changes, the fund has made aggressive asset allocation shifts in the past six months. Investments in debt which constituted around 67 per cent of the portfolio at the end of November 2001 was brought down sharply to 23 per cent at the end of February 2002. Correspondingly, investments in equities were increased to 60 per cent from 34 per cent. The fund also held on to large cash positions in December, January and February. The fund's investment in government securities also witnessed large swings.
Important, in December 2001, the fund appears to have engaged in inter-scheme transfers of its AAA rated unlisted debt investments. Unlisted debt investments, that constituted 54 per cent of the net assets in November 2001, declined sharply to 26 per cent at the end of December 2001. Interestingly, the scheme recorded profits of Rs 4.14 crore on inter-scheme transfers in the half-year period ended December 2001 and made provisions for doubtful debts to the extent of Rs 4.02 crore. This suggests that the scheme transferred significant unlisted debt securities to other schemes at a profit and used to write down the value of non-performing assets.
Apart from the revenue implications, what the transfers did was to reduce the exposure to AAA securities in the portfolio. The fund had transferred AAA securities only during December 2001. This enhanced the risk profile of the debt portfolio. The situation persisted till the end of May 2002. However, the lower rated instruments belonged to companies with a reasonable performance record. Besides, larger investments in lower rated companies may be good for expected returns.
In terms of equities, the strategy has been to load the fund with stocks of small and mid-cap companies. Even at the end of May 2002, stocks of small-cap and mid-cap companies constituted around half of the value of investments in equities.
The strategy appears to have paid-off in the last six months as the fund is among the top performers in the last six months. However, this strategy comes with risks. The risk of a sharp downside in the event of an economic downturn exists. Again, this is a point investors willing to hold must consider.
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