GEMGAZE
March 2012

Arbitrage opportunities widen during volatile times and arbitrage funds give better returns and work well only if spreads are significant. As these funds resort to heavy trading to maximise gains, expense ratios are higher. Moreover, investors would neither be able to predict the gains nor how they would perform over a longer period. With gains from fixed maturity plans well over 9% for investments of little over a year, arbitrage funds may not be attractive for the one-year time frame.

Inspite of the temporary lull in the performance of arbitrage funds, all the GEMs in the March 2011 GEMGAZE have retained their preeminent position in the March 2012 GEMGAZE, thanks to their consistency and stability.

UTI SPREAD Fund Gem
Shining star

UTI SPREAD Fund is a six-year old five star fund with an AUM of a paltry Rs. 34 crore. Its one-year return of 8.61% is ahead of its category average of 7.61%. 61% of the portfolio is in equities, with finance, diversified and services being the top three sectors. The entire assets allocated to equity are in 61stocks. 14% of the assets are in debt with 25% in cash. The increase in allocation to equity compared to last year can partially explain the tremendous improvement in one-year return. 58% of the portfolio is in large caps and 41.78% of the portfolio is in the top three sectors. While the portfolio turnover ratio is a massive 870.1%, the expense ratio is very low at 1%.

HDFC Arbitrage Fund Gem
Consistent resilience

In its four-year old existence, HDFC Arbitrage Fund has been able to reach an AUM of a mere Rs 51.76 crore. The one-year return of the fund is 7.59% as against the category average of 7.61%. There has been a sea change in the sector preference of this fund. The healthcare sector has occupied the top slot toppling energy sector to the fifth position. The sectors that come second and third in preference are FMCG and services. Top 5 holdings constitute 33.67% of the portfolio. Equities constitute 68% of the portfolio with 55% in large cap stocks. The portfolio has 30 stocks and the portfolio turnover ratio is high at 157.66%. The expense ratio is as low as 0.85%.

Kotak Equity Arbitrage Fund Gem
Astute player

Incorporated in September 2005, Kotak Equity Arbitrage Fund has an AUM of Rs 125.61 crore. The one-year return of the fund is 8% as against the category average of 7.61%. Top five holdings constitute 27.25% of the portfolio, with the equity exposure continuing to be nil and debt constituting 27% of the portfolio. The portfolio turnover ratio is 166.85% and the expense ratio is 0.95%.

JM Arbitrage Advantage Fund Gem
Cost advantage

The Rs 42.37 crore JM Arbitrage Fund, incorporated in 2006, has earned a 1-year return of 7.99% beating the category average return of 7.61%. Top five holdings constitute 41.5% of the portfolio with communication, energy, and metals forming the top three sectors. Equity constitutes 69.68% of the portfolio with 73% in mid and small cap stocks. There are 19 stocks in the portfolio. The portfolio turnover ratio is very low at 10.31%. The expense ratio is 1%.

SBI Arbitrage Opportunities Fund Gem
Expensive proposition

SBI Arbitrage Opportunities Fund, incorporated in October 2006, has an AUM of Rs 74.93 crore. Its one-year return is 8.39 %, well ahead of the category average return of 7.61%. The top five holdings constitute 34.48% of the portfolio. Metals, energy and textiles are the top three sectors. 69% of the portfolio is made up of equity with 58% in large cap stocks. There are 43 stocks in the portfolio with a very high portfolio turnover ratio of 874%. The expense ratio is very high at 1.84%.