GEMGAZE

March 2015

 Whither Arbitrage funds?

Arbitrage funds are available a dime a dozen in the market today. As the name suggests, they exploit arbitrage opportunities available between the cash and futures markets to deliver returns to its investors. These funds are essentially a variant of balanced funds with the basic difference that the equity component is hedged in the futures market. The ability of these funds, treated at par with other equity funds for tax treatment, to generate higher returns depends on the volatility in the equity markets — the higher the better. The provisions of Budget 2014, aimed against debt funds, proved to be a boon for arbitrage funds, with the subsequent excessive demand for arbitrage funds turning out to be a bane…making the euphoria short-lived.

All the GEMs that figured in the March 2014 GEMGAZE, save UTI Spread Fund and HDFC Arbitrage Fund, have retained their esteemed position in the March 2015 GEMGAZE too. IDFC Arbitrage Fund and ICICI Prudential Equity Arbitrage Fund, by virtue of their exhilarating performance, have been accorded a red carpet welcome in the March 2015 GEMGAZE.

Kotak Equity Arbitrage Fund Gem

Incorporated in September 2005, Kotak Equity Arbitrage Fund has an AUM of Rs 2,556 crore. The one-year return of the fund is 8.73% as against the category average of 8.53%. The top three sectors are finance, energy, and healthcare. Top five holdings constitute 43% of the portfolio, with the equity exposure at 59% and debt constituting 35% of the portfolio. The portfolio turnover ratio is 237% and the expense ratio is 0.91%. The fund is benchmarked against the CRISIL Liquid Fund Index with Mr. Deepak Gupta efficiently managing the fund.

JM Arbitrage Advantage Fund Gem

The Rs 3125 crore JM Arbitrage Fund, incorporated in 2006, has earned a one-year return of 8.14% modestly trailing the category average return of 8.53%. Top five holdings constitute 39% of the portfolio with finance, healthcare, and auto forming the top three sectors. Equity constitutes 68% of the portfolio with 34% in debt. The portfolio turnover ratio is very high at 222%. The expense ratio is 0.75%. The fund is benchmarked against the CRISIL Liquid Fund Index. The fund is managed by Chaitanya Choksi since February 2011 and Asit Bhandarkar and Sanjay Kumar Chhabaria since July 2014.

SBI Arbitrage Opportunities Fund Gem

SBI Arbitrage Opportunities Fund, incorporated in October 2006, has an AUM of Rs 367 crore. Its one-year return is 8.57%, a tad higher than the category average return of 8.53%. The top five holdings constitute 47% of the portfolio. Finance, healthcare, and diversified are the top three sectors. 66% of the portfolio is made up of equity with 33% in debt. The portfolio turnover ratio of the fund is very high at 469%. The expense ratio is comparatively high at 1.32%. The fund is benchmarked against the CRISIL Liquid Fund Index. The fund is managed by Neeraj Kumar since October 2012.

IDFC Arbitrage Fund Gem

IDFC Arbitrage Fund is an eight-year old fund with an AUM of Rs 2194 crore. Its one-year return of 8.36 % is a tad lower than its category average of 8.53% at present. The fund is amongst the more consistent players in terms of beating the CRISIL Liquid fund Index over 70% of the times on a rolling – return basis. 68% of the portfolio is in equities, with finance, healthcare, auto being the top three sectors. The entire assets allocated to equity are in 66 stocks and 33% of the assets are in debt. While the portfolio turnover ratio is a massive 1896%, the expense ratio is very low at 1.01%, an icing on the cake, indeed. The fund has been managed by Yogik Pitti since June 2013. 

ICICI Prudential Equity Arbitrage Fund Gem

Incorporated in December 2006, ICICI Prudential Equity Arbitrage Fund has an AUM of Rs 1,193 crore. The one-year return of the fund is 8.53% at par with the category average of 8.53%. The top three sectors are finance, auto, and healthcare. Top five holdings constitute 36% of the portfolio, with the equity exposure at 64% and debt constituting 34% of the portfolio. The portfolio turnover ratio is 78% and the expense ratio is 0.85%. The fund is benchmarked against the CRISIL Liquid Fund Index with Mr. Manish Banthia and Mr. Kayzad Eghlim efficiently managing the fund since November 2009 and February 2011 respectively.