Here is an equity fund from the stable of SBI Mutual Funds that has done exceptionally well after an indifferent performance in its initial years. Magnum Global Fund was launched as a close-ended scheme on October 1994 and was converted into an open-ended fund from 1 October 1999.

Though the fund objective is relatively bland and talks only about ‘an opportunity to earn returns that would be higher than the returns offered by comparable investment avenues through investment in Indian equities’, its stock picking approach has essentially been mid-cap focussed. The fund manager, Sanjay Sinha says, "We have a philosophy of investing in such stocks whose market capitalization is less than the market capitalization of the lowest market cap stock on the nifty. We adopt a `bottom-up` strategy for stock-picking”.

This investing approach clearly seems to have stood the fund in good stead. It has easily beaten its benchmark index (each fund denotes its benchmark which is one way to compare performance. The other is to look at how peer funds - which are not necessarily bench marked to the same index - are doing) over one year, three year and five year horizons. Magnum Global returned 59%, 68% and 60% over these time periods whereas the BSE 100 gained 42%, 32% and 36% respectively. Not only that, when one looks at performance of peer funds in the equity diversified category, Magnum Global Fund has taken the top position in terms of yearly and quarterly (Oct-Dec 2006) returns. For the investor who frequently looks at his/her fund’s performance there are reasons to feel less disturbed too with quarterly returns for Magnum Global being infrequently in the negative with only 5 quarters out of the last 20 quarters showing an erosion in wealth. The asset under management has grown from about Rs 375 crore a year back to the current size of Rs 954 crore.

Surprisingly, good performance has not come at the cost of volatility. The fund has a beta of 0.96 (an indicator showing how volatile returns), a little below its category median. The Sharpe ratio, which computes return earned for unit risk and is a little more sophisticated measure is at –0.54, better than the median of -0.63.

The fund manager, Sanjay Sinha, is with SBI Mutual Fund (he was with UTI before) since November 2005 and manages more than a dozen funds with Magnum MultiCap Fund, Magnum Contra Fund, Magnum Emerging Businesses Fund, and Magnum Multiplier Plus Fund being the notable ones.

Looking at the portfolio, Magnum Global has been bullish on the construction, capital goods and the cement and allied construction related products. In fact, construction and cement products account for about 25% of the exposure with manufacturing taking up another 16% of the total portfolio managed. At about 40% of the total portfolio, this is higher than many funds in the similar category. Significantly, the fund manager has been steadily increasing the cash component in the portfolio which has now reached more than 13% at the end of December from about 2.25% at the end of September 2006.

The stock composition has however increased to 54 stocks as compared to 30 a year back. The top 5 stocks as at the end of December 2006 comprise about 25% of the total corpus. The fund manager says ‘In the course of the last one year the size of the fund has grown but the performance has also been maintained by enlarging the portfolio so that we could accommodate promising stocks without impacting their prices by the force of our buying.’ When queried by myiris, he also added that the fund does not have any sectoral bias and looks at the mid-cap universe as a whole.

On the other hand, the fund has clearly bet on growth stocks (many mid-caps qualify for this sobriquet) with a portfolio price earnings ratio well in excess of the price earnings ratio of the category median. Does this denote an immanent risk if the growth momentum in the economy slows? Perhaps yes, but it is worth pointing out that the fund looks to have bet on the investment boom India is seeing and this may not recede that fast.