SBI Pharma Fund

If you had invested Rs one lakh in SBI Pharma ten years ago, that amount would have grown to whopping Rs 5.4 lakhs today, growth at CAGR of 18.38 per cent. The fund has not only demonstrated strong performance in long-term but also in short and medium term. In last one and three year period the fund has given return of 30.22 per cent and 33.57 per cent on annualised basis respectively. This is way above the category return of 27.89 per cent and 15.75 per cent in the same period. The fund has been able to generate better returns in both rising and falling market. For example in year 2011, when the BSE Healthcare and BSE Sensex had fallen by 13 per cent and 25 per cent respectively, fund was able to arrest its fall to 5.54 per cent.

Better performance of pharmaceutical sector as a whole has remained one of the prime reasons for such performance of the fund. Pharmaceutical sector has remained in the limelight in last few years, wherein the BSE Healthcare index has moved up by more than 125 per cent since the start of 2007. This is despite various companies in pharmaceutical sector facing regulatory hurdle from USFDA.  What has really helped this sector to perform is healthy export, defensive nature of the business and weakening rupee. 

Going forward this sector is expected to continue with its growth trajectory, riding on generic revolution around the world. Although, large-cap companies like Sun Pharma whose market cap has grown up by 20 times in last ten years are expected to display lower rate of growth, mid cap and small cap companies will continue with their good performance.  Thirty per cent of SBI Pharm’s portfolio is invested in such medium, small and micro cap pharma companies against around 20 per cent in the benchmark index.  This will help fund to maintain its out-performance against the benchmark going forward. Rest 70 per cent of the fund is invested in giant and large cap that will add stability to the returns. What is also important to note in the portfolio of this fund is that there are no companies that is facing any action by USFDA. The fund’s style of holding stock is basically growth oriented.

Better performance of the fund has not come at a cost of taking extra risk. This is better reflected in the Sharpe ratio, which is a measure of risk adjusted return, of the fund that stands at 0.84. Even the alpha of the fund is at 3.99, which is highest among its peers. Alpha represents the excess return that fund has generated at a given level of risk.

The fund is managed by Tanmaya Desai since 2011 and since then the fund has consistently performed. This has helped to increase asset of the fund by 3.6 times, which at the end of December 31, 2013 stands at Rs 146.4 crore.

We advise only risk aversive investors to invest in this fund as concentration of the fund’s portfolio is skewed towards large caps giving stability to returns.