Sundaram Mutual Fund has launched a new close ended fund called ‘Sundaram Emerging Small Cap Series III.’ The fund has opened for subscription on 23rd April and will close on 7th May. It will invest primarily in small cap stocks and will have a tenure of five years, just like its immediate predecessors – Sundaram Emerging Small Cap Series I and Series II. You can find our review of Series I here and Series II here.
Series I was launched on 5th March and has delivered 2.93% since launch. This translates to an annualized return of about 24%. Series II was launched on 2nd April and has delivered a return of 1.29% since launch. This translates to an annualized return of about 25%. Do note that these time-frames are too small to conclude anything about these two funds or to extrapolate these returns.
The fund can allocate between 65% and 100% of its corpus in small cap equities and must park the rest in either larger company stocks or debt. With SEBI classification being implemented by fund houses across the country, the term ‘small cap’ has been rigidly defined as companies below the top 250 companies by market capitalisation.
The S&P BSE 250 will be the benchmark for the scheme. This is the same benchmark as Series II and unlike the benchmark of Series I which was the S&P BSE Small Cap Index. The shift towards the BSE 250 (the smaller companies in the BSE 500) may mark a shift towards larger companies in the fund than its predecessors.
S Krishnakumar and Dwijendra Srivastava are the managers of this fund as was the case with Series I and II. Krishnakumar is the Chief Investment Officer (CIO) for Equity at Sundaram Mutual Fund. Dwijendra Srivastava is the CIO for Debt.
One way of evaluating this NFO is to look at how the previous close ended small and micro-cap funds by Sundaram have performed. Small caps and Micro-caps have been previously defined by Sundaram as companies below the top 300 by market capitalisation. This is similar to, but not the same as the current ‘small cap’ category which is companies below the top 250. However, the broad theme of investing in small companies remains constant throughout these distinct series of funds.
Out of 22 such funds, we find that only 10 have outperformed their benchmarks. What is to be noted is that none of the small-cap close-ended funds launched by Sundaram in 2016 or 2017 has outperformed their benchmarks. The entire Select Smallcap series has underperformed. Undoubtedly, the time-frames of these recent ones are too short to form a definite view. However, the trend is not encouraging.
|Sundaram Select Smallcap Fund Series|
|Series||Launch Date||% Since inception (annualized)||% Benchmark||Outperformance?|
|Sundaram Select Microcap Fund Series|
|I||3rd Jan 2014||32.9||26.4||Yes|
|II||27th Jan 2014||33.4||28.1||Yes|
|III||17th Feb 2014||33.5||28.5||Yes|
|IV||11th March 2014||32.2||27.1||Yes|
|VI||1st October 2014||20.2||15.2||Yes|
|VII||31st October 2014||19.7||14.7||Yes|
|VIII||21st October 2015||20.3||18||Yes|
|IX||5th November 2015||20.5||20.3||Yes|
|X||7th December 2015||21||19||Yes|
|XI||28th December 2016||16.5||34.7||No|
|XII||8th February 2017||14.4||22.9||No|
|XIV||28th April 2017||7.9||11.3||No|
|XV||31st May 2017||5.4||13.4||No|
|XVI||30th August 2017||0.2||7.4||No|
|XVII||13th October 2017||-5.1||0.1||No|
Source: Sundaram Mutual Fund. Figures as at the end of March 2018. We were unable to find data on Sundaram Select Smallcap Series I.
Close-ended funds compromise on your liquidity. They also depend on the market performing well in an arbitrarily chosen time period (3 years or 5 years). The market can rally at any point and a rally say 3 years 1 months down the line or 5 years 4 months down the line will not be captured by such funds.
Sundaram has a mixed record for its small-cap close-ended funds. As mentioned above, only 10 out of 22 schemes have outperformed their benchmarks and none of the launches in 2016 or 2017 has outperformed.
Freed from the pressure of rapid inflows and outflows, a fund manager of a close-ended fund can outperform. However, the past returns on Sundaram close-ended funds do not make this advantage apparent.
NFO Key Details:
Period: 23rd April to 7th May 2018
The term of fund: 5 years
Minimum Investment: Rs 5,000
Investment Options: Growth, Dividend Payout and Dividend Sweep. Dividend Sweep moves a dividend declared by this scheme into another open-ended Sundaram Fund of your choice.
Fund Manager(s): S Krishnakumar
Entry and Exit Load: None
Benchmark: S&P BSE 250