Fidelity Tax Advantage Fund, in existence since February 2006, has been a consistent performer and ranked Crisil-CPR 1 over the last seven quarters ending December 2009. Funds ranked Crisil-CPR 1 form a part of the top 10 percentile of Crisils ranked universe.
The consistency in rankings for the fund is an indication of a blend of superior performance and disciplined portfolio management. It is a diversified equity fund that offers tax rebate under Section 80C of the Income Tax Act, 1961. The fund, with a bias towards large-cap stocks (70 per cent of portfolio), had assets of Rs 1,162 crore as on March 2010.
Performance The real test of a funds performance is during a bear phase. This is clearly reflected during the market downturn of 2008. An analysis of the month-on-month fund performance vis--vis its benchmark index (BSE 200) reveals the fund gave higher returns in nine out of 12 months. During the same period, the funds performance was higher than the peer average in 10 out of 12 months.
The funds performance has outshone the index during its life. It posted a CAGR (compounded annual growth rate) of more than 14 per cent over the three-year period ended April 30, 2010. The BSE 200 and the peer set, on the other hand, returned a CAGR of 10 per cent over the same period.
Risk The funds strong performance on returns has been complemented by lower volatility vis--vis its peer average. This is clearly visible in the volatility trends for the fund and its peers over its history. The superior performance of the fund on the combination of returns and risk, relative to its peers, is a key factor in propelling its performance to Crisil-CPR 1.
Portfolio diversification The fund has a largely diverse portfolio and an inclination towards large-cap stocks. The average number of stocks held over the last three years ended March 2010 was 73 while the top 10 stocks in the portfolio accounted for not more than 42 per cent of its assets. Portfolio concentration is a measure of the relative proportions of different securities in a portfolio. Crisils assessment of industry and company concentration of equity funds is critical to assess risk mitigation in portfolio construction.
Investment style An important aspect of Fidelity Tax Advantage Funds investment style is active cash calls across various market phases. By following this strategy, the fund benefited when markets were going through a bear phase in 2008. For most of 2008, when equity markets were volatile, the fund had around 10 per cent of assets in cash and equivalents. On the other hand, the fund reduced its exposure to cash and equivalents when the markets recovered.
Over the last three years, banking has been the most preferred sector for the fund with an average exposure of around 15 per cent followed by pharmaceuticals and refineries/oil marketing companies.