The SBI Focused Equity Fund is a fund to invest in a maximum of 30 stocks in the market cap segment for long term wealth appreciation. It seeks to distribute long-term capital appreciation prospects for investors by investing in a focused portfolio of equity and equity-related instruments.
Launched in October 2004, the fund has a corpus of Rs 5,726 crore, which makes it one of the most significant funds in the category. Prominently, SBI Focused Equity Fund was earlier known as the SBI Emerging Businesses Fund with a mandate of investing in stocks of Mid and Small-sized companies.
The investment strategy of SBI Focused Equity Fund
Being a focused fund, it is necessary to limit the SBI focused equity fund to a maximum of 30 stocks in the portfolio. It can invest at least 65% of its assets in equities and equity-related instruments, while it can invest up to 35% of its assets in debt and money market instruments. However, the fund refrained from investing in debt and money market instruments.
The fund manager follows the bottom-up stock picking approach for market capitalization and high confidence bets in companies across sectors. The fund’s portfolio is now biased towards large caps as well as significant allocations in mid and small caps.
SBI Focused Equity Fund invests with a large-cap preference through market capitalization. The fund usually allocates about 50% of its assets in large-cap stocks, while in mid-caps, it allocates between 15 and 20%. In a highly volatile small cap, the fund has gradually reduced its exposure from around 30% to currently about 15-20%. During this time, the fund increased its allocation towards a more secure large cap. The balance of the fund’s assets will be retained as cash equivalents.
Kotak Mahindra Bank has contributed the most to the fund’s returns in the past year, with shares in the portfolio having a yield of 2.1 percent. Several significant contributors to the portfolio gains were Procter & Gamble Hygiene and Health Care, Fine Organic Industries, HDFC Bank, and ElgiEquipments.
On the other hand, stocks like Indostar Capital Finance, Sheela Foam, and HatsunAgro Products have lost some of their gains in the past year.
Suitability of SBI Focused Equity Fund
SBI Focused Equity Fund allocates most of its portfolio to market capitalization and diversified stocks across sectors. Its compact portfolio style allows fund managers to take high betrayal bets on stocks that have the potential to generate high returns.
Nevertheless, if any of the selected stocks come under pressure, the concentrated portfolio will have higher volatility. These funds are suitable only for active investors with uncertainty risk and high-risk appetite, together with an investment horizon of 5 years or more.
Conclusion: While most mutual funds typically have between 50 -100 stocks in their portfolio for optimal diversification, a few select stocks drive output over a given time. Conversely, some funds have mitigated the trend by focusing on a small number of high-confidence stocks and keeping them to optimize their returns over the long term.