Last Updated : Jan 30, 2015 07:59 PM IST Source:
The scheme focuses on generating absolute returns by investing in equities. The funds theme is to take the volatility risk of MIP but deliver the returns of Nifty Index.
Edelweiss Absolute Return Fundis a scheme with a unique investment strategy. The fund employs multiple strategies to generate returns for the investor along with giving a downside protection from equity investments. The fund is listed in the equity oriented hybrid category, even though it benchmarks itself with MIP Blended Index, shows that there is no other fund with same concept.
It will be interesting to review the fund to analyze what strategies it is following which makes it unique and whom it benefits more-
Edelweiss Absolute Return Fund was launched in August 2009 by Edelweiss Asset Management Company and has an asset size of Rs 148 cr. today. The fund is managed by Mr. Paul Parampreet since April 2010 and co-managed by Mr. Ashish Sahay since June 2014. The funds theme is to take the volatility risk of MIP but deliver the returns of Nifty Index which follows for its equity returns.
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The scheme name signifies that the theme of the fund is to generate absolute returns and not focus much on the annualized returns. The Investment objective of the scheme also states it as its primary objective. To meet this objective the fund invest in arbitrage opportunities, equity derivative strategies, pure equity investments and partly in debt and money market instruments. While it invests directly in stocks it dynamically hedges these positions by investing in options and index futures to provide a good downside protection to its investors. Although it has mandate of investing 65-100% in equities the fund has restricted the equity exposure to 70%. The other part i.e. 30% of its portfolio, is invested in special situations like open offers, mergers or delisting and low risk strategies such as cash future arbitrage or fixed income. The fixed income portfolio comprises mainly of securitized paper. The scheme also has a mandate for stock lending and the money it receives from here is generally utilized to hedge its equity positions.
Within Equity investment the fund has been high on financial services which is contributing approximately 30% to its total portfolio. The other sector following it is IT with 11% exposure. Since it follows cash future arbitrage and hedging strategy it is keeping high amount in cash which is almost 30% of the total portfolio today. While the fund has mix of multiple strategies, it has kept a mandate to limit the exposure in various investments like 35% of net assets in securities, 10% of net assets in interest rate swaps for hedging, and not more than 25% of the net assets of the scheme in stock lending. The scheme can also invest in foreign securities but has a mandate to not go beyond 35% of the scheme net assets.
One of the important factors to judge here is volatility which is the primary focus of the fund. It is surely on the lower side as Standard Deviation is 7.51% while beta at .51. Since there is arbitrage strategy the turnover of the fund is also high going upto the rate of 250%. The expense ratio of the fund is on higher side at 2.86 which can be result of its strategy.
The fund has benchmarked itself against CRISIL MIP Blended Index primarily to take control of the volatility risk. For equity it follows the nifty index and aims to outperform it on both sides of the markets. As the name suggest the focus of the scheme is to outperform on the absolute returns but with low volatility. So it will be worthwhile for investors to compare this fund on absolute returns also which is the primary objective.
Annualized Performance of Edelweiss Absolute Return Fund as on 28th January 2015 ( %)
As can be seen in the above tables the fund does outperform MIP Index at all levels but fails to repeat it for the nifty index. However when you look at the calender returns then it does succeed in meeting its primary objective i.e. keeping the downside protected as the fall in 2011 is much lower than the index. But all said, in absolute returns it is always difficult to conclude any future performance as the story may change daily.
Its difficult to compare as there are no peers with same strategy. The investment strategy it follows is unique to mutual funds industry and not yet replicated by any other fund house. There are abirtrage fund but their startegies are restricted to the concept and no other fund is focusing on absolute return. .
When you look not only at the returns but its multiple strategies then you feel interested in the fund. The volatility has been kept in control with its uncorrelated strategies. With a unique concept it does look promising but for small investors the fund is difficult to understand. For investors who are aware of equity investments and looking at better returns than MIP with a good downside protection it can be an option worth considering. But do note that the fund upside is limited as the equity exposure is restricted.
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