Fidelity Tax Advantage

Last year’s returns were commendable. But it also stands out for its large-cap bias. In fact, only two tax saving funds (out of 37) fall in the large-cap space. The outcome is that it shields investors better than its peers during market downturns. Since its launch, of the total eight quarters in which its category has been in red, the fund has outperformed its peers in all of them. On the flip side, one has to deal with middling performance during market run-ups.


The fund has no restrictions in terms of market cap, sector or thematic bias. The focus is on bottom-up stock picking approach. The selection of the stocks will be done on the basis of the core strengths of the companies. The fund will control risk through a diversified portfolio with no high allocations to a single stock.


The portfolio is biased towards large caps and clearly towards Financial Services. The sector has accounted for around one fifth of the portfolio since the launch of the fund. However, Kothari claims to have no bias towards any particular sector. He does believe that Financial Services, as a sector, is a good proxy to the overall growth in the economy. To add to it, India still has a low penetration in this space hence the potential to grow and compound returns over the long-term.
The decision to buy or sell a stock is made on the basis of the fund manager’s understanding of the growth outlook, fundamentals and valuations. So even when Metals had a great run in 2007 and 2009, his exposure was limited to around 5 per cent.
Kothari goes by the balance sheet more than what the market is chasing. So it’s not surprising to see that 17 of his holdings have been held in the portfolio almost since inception.

Portfolio

Currently, close to one fourth of its assets are in Financial Services. Despite a large-cap bias, the portfolio is very diversified across 64 stocks. Apart from Reliance Industries, allocation to a single stock has rarely exceeded 6 per cent of the portfolio. However, the fund takes numerous small bets. In December 2010, 28 stocks accounted for less than 1 per cent of the fund’s portfolio.


The large-cap bias does not make it a very exciting offering. While it does give stability, the concentrated sector bets (if the fund manager is comfortable with valuations) could hinder performance if they do not deliver. 

Although not a very exciting offering, Fidelity Tax Advantage does provide stability & consistency…

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