Fund of Fortnight

L&T Emerging Businesses Fund - Direct Plan (Growth)

Reason for recommendation : L&T Emerging Business, one of the youngest funds in its category, is also one of the best performers since its launch. The fund has consistently beaten its peers and benchmark over the years in terms of returns. This is a small-cap dedicated fund holding 65.55 per cent of its net assets in small-cap and 23.54 per cent in mid-cap. The large-cap stocks are conspicuous by its absence.



Going ahead, the fund is likely to continue with its performance as the difference between large-cap indices and other cap indices are at historical lows, now. This caps the downfall of the fund without impacting the upside potential. In the past one year, fall in the prices of mid-cap and small-cap stocks have made these stocks attractive as they are available at a cheaper valuation. Moreover, the election year optimism might give a further boost to these stocks.

  

What is also good about the fund is it is well-diversified. At the end of February 2019, the fund was holding 88 stocks in its portfolio and not a single company has weightage of more than 2.51 per cent. So even if the election outcome is not favourable for the market, the fund is likely to fall less due to its diversity. Moreover, our assessment about the risk of the fund based on its underlying shows that it carries a ‘moderate’ risk compared to ‘moderately high’ and ‘high’ risk carried by its peers. The fund is ideal for those investors who are looking to take exposure in the small-cap funds and expect higher returns, however, do not want to take risks accordingly.



This might not be top ranked fund, however, looking at risk-reward opportunity we recommend this fund.
* Expected one year return is based on the assumption that current holdings remain constant.