As per SEBI regulations, a focused fund is not allowed to hold more than 30 stocks and invests a minimum of 65% of its assets in equity and equity related instruments. KFEF will allocate its assets as per the given prescribed limits in equities and will also allocate some portion (up to 35% of its total assets) to debt and money market instruments from an asset allocation standpoint and to mitigate the risk.
In an endeavour to capture potential gains over the long term with a focused approach, KFEF will diversify its equity portfolio across the market cap using a top-down thematic overlay. While investing in equities would entail a very high-risk. Hence, KFEF is suitable for investors who have the stomach to bear the extremely high risk and have an investment time horizon of at least 5-7 years while they seek to appreciate their capital.
Table 1: Details of Kotak Focused Equity Fund
|Type||An open-ended equity scheme investing in maximum 30 stocks in large-cap, mid-cap and small-cap category.||Category||Diversified Equity — Focused Fund|
To generate long term capital appreciation/income by investing in equity & equity related instruments across market capitalization of up to 30 companies. |
However, there is no assurance that the objective of the scheme will be realized.
|Min. Investment||Rs 5,000 and in multiples of Re 1 thereafter||Face Value||Rs 10 per unit|
• Dividend (Payout & Reinvestment*)
|Entry Load||Nil||Exit Load||If redeemed / switched (including SIP/STP);
|Fund Manager||Ms Shibani Kurian, Mr Harish Krishnan and Mr Arjun Khanna||Benchmark Index||Nifty 200 TRI|
|Issue Opens||June 25, 2019||Issue Closes:||June 11, 2019|
(Source: Scheme Information Document)
How will the scheme allocate its assets?
Under normal circumstances, the scheme’s asset allocation will be as under:
Table 2: KFEF’s Asset Allocation
|Instruments||Indicative Allocation||Risk Profile|
|Equity and Equity related Instruments#||65 – 100%||Medium-High|
|Debt & Money Market Instruments*||0 – 35%||Low to Medium|
|Units issued by REITs and InvITs||0 – 10%||Medium to High|
#Subject to overall limit of 30 stocks across market capitalization.
*Debt instruments shall be deemed to include securitised debts (excluding foreign securitised debt) and investment in securitised debts may be up to 50% of Debt and Money Market instruments. This will also include margin money for derivative transactions.
*Money Market instruments include commercial papers, commercial bills, treasury bills, Government securities having an unexpired maturity up to one year, call or notice money, certificate of deposit, usance bills, and any other like instruments as specified by the Reserve Bank of India from time to time.
(Source: Scheme Information Document)
What will be the Investment Strategy?
To achieve the investment objective, the Kotak Focused Equity Fund will invest in equity and equity-linked instruments of up to 30 companies across market capitalization viz. Large cap, mid cap and small companies as defined under SEBI circular no. SEBI/HO/IM/DF3/CIR/P/2017/114 dated October 6, 2017, and as may be amended by SEBI from time to time.
Currently in terms of full market capitalisation, the
- Large-cap companies are the 1st-100th,
- Mid-cap companies are 101st – 250th,
- And small-cap companies are 251st company onwards.
The list of stocks would be as per the list published by AMFI in accordance with the said circular and updated on half yearly basis.
The portfolio construction will be based on a thematic approach to bottom-up stock picking using the Business, Management and valuation (BMV) model. The Fund Manager will evaluate-
- The business environment that a company operates in,
- The capability of the management to execute and scale up the business and
- The valuation of the company based on fundamentals like discounted cash flows and PE ratios, etc.
The Scheme may invest in listed/unlisted equity shares as per the extant SEBI (Mutual Funds) Regulations, 1996 and amended by SEBI from time to time. The scheme may also invest in listed/unlisted and/or rated/unrated debt or money market securities, provided the investments are within the limits indicated in the asset allocation pattern.
Investment in unrated debt securities is made with the prior approval of the Board of the AMC, provided the investment is in terms of the parameters approved by the Board of the Trustee. Where the proposed investment is not within the parameters as mentioned above but within the limits prescribed under SEBI mutual fund regulations, approval of the Boards of both the AMC and the Trustee is taken before making the investment.
Risk Mitigation Measures
- For investment strategy:
Risk is monitored, and necessary action would be taken on the portfolio if required. Attribution analysis is done to monitor the under or over performance vis-a-vis the benchmark and the reasons for the same, within the prescribed SEBI limits on exposure.
- For portfolio volatility:
The overall volatility of the portfolio would be maintained in line with the objective of the scheme. The portfolio would be adequately diversified to mitigate volatility. Volatility would be monitored with respect to the benchmark and peer set.
- For managing liquidity:
The scheme predominantly invests across market capitalisation which is actively traded and thereby liquid. The fund manager may allocate some portion of the portfolio to debt and money market instruments and/or cash within the specified asset allocation framework for the purpose of meeting redemptions. The liquidity would be monitored, and necessary action would be taken on the portfolio if required. Stock turnover is monitored at regular intervals. The debt/money market instruments that are invested by the fund will have a short-term duration.
Who will manage the Kotak Focused Equity Fund?
Ms Shibani Kurian and Mr Harish Krishnan will be the Fund Managers of the Kotak Focused Equity Fund. Mr Arjun Khanna will be the Dedicated Fund Manager for investments in foreign securities.
Ms Shibani Kurian has an Honors degree (BSc. Hons) in economics from St Xavier’s College situated at Kolkata and a PGDBM in finance from T.A. Pai Management Institute to her credit
Ms Kurianis currently the Senior Vice President & Head of Equity Research at the Kotak Mahindra Asset Management Company Ltd and has been associated with the company since November 2007. Her key responsibilities include fund management and equity research. Prior to joining Kotak AMC, she was working with Dawnay Day AV India Advisors Pvt Ltd and UTI AMC.
Mr Harish Krishnan is the Sr. Vice president (Fund Manager) at Kotak Mahindra AMC. He is a Bachelor of Technology (Electronics & Communications) from Government Engineering College, Trichur, a Postgraduate in Management from Indian Institute of Management, Kozhikode and a Chartered Financial Analyst from the CFA Institute.
Mr Krishnan has 14 years of experience spread over Equity Research and Fund Management. Prior to joining Kotak Mahindra Mutual Fund, he was based out of Singapore and Dubai, managing Kotak’s offshore funds. He has also worked at Infosys Technologies Ltd in his earlier stint.
Currently, at the fund house, some of the funds which he manages include Kotak Infrastructure & Economic Reform Fund, Kotak Bluechip Fund, Kotak India Growth Fund Series 5, Kotak Balanced Advantage Fund and Kotak Equity Savings Fund.
Mr Arjun Khanna is a Bachelor of Engineering (Electronics) and has done his Master of Management (Finance) from Jamnalal Bajaj Institute of Management Studies, Mumbai. He has received the Chartered Financial Analyst designation from the CFA Institute.
Mr Khanna has over 11 years of experience out of which 10 years have been with Mutual Funds in Equity Research. Prior to joining Kotak Mahindra Mutual Fund, he was with Principal Mutual Funds. He has also worked at Citibank in his earlier stint.
Some of the schemes that he manages at the fund house include Kotak Infrastructure & Economic Reform Fund, Kotak Bluechip Fund, Kotak Equity Hybrid, Kotak Emerging Equity Scheme, Kotak Equity Savings Fund, Kotak Small Cap Fund, Kotak Standard Multicap Fund, Kotak Debt Hybrid Fund, Kotak Equity Opportunities Fund, Kotak Banking and PSU Debt Fund, Kotak Bond Short Term Plan, Kotak Bond Fund, Kotak Corporate Bond Fund, Kotak Dynamic Bond Fund, Kotak Money Market Scheme, Kotak Credit Risk Fund, Kotak Mahindra Liquid Scheme, Kotak Low Duration Fund, Kotak Medium Term Fund, Kotak Savings Fund, Kotak Mahindra Gilt Unit Scheme 98 – Investment Plan Kotak Global Emerging Market Fund, Kotak Global Emerging Market Fund, Kotak US Equity Fund, Kotak World Gold Fund, Kotak Asset Allocator Fund and Kotak Balanced Advantage Fund.
The outlook of Kotak Focused Equity Fund:
On evaluating KFEF’s investment objective and strategy, it is evident that the fortune of the fund would be closely linked to a maximum of 30 stocks held in the portfolio.
While diversification across market capitalisation segments and stock along with a bottom-up approach to stock selection with a top-down thematic overlay will help, how the fund manager ultimately constructs the portfolio remains to be seen.
However, amidst the turbulence owing to the macroeconomic headwinds in play, constructing the portfolio would be a challenging task for the fund managers.
If the Indian equity markets hit more turbulence ahead that may inflict extremely-high-risk, even though the fund has the option to invest in equity derivative instruments for hedging or balancing the portfolio to optimize returns and mitigate the risk involved.
While constructing the portfolio with the aim of diversification, a dominant allocation to the large cap can offer stability to the investment portfolio. Large blue-chip companies with strong balance sheets and proven track records in the portfolio could help ride the wave of short-term volatility to a certain extent. But in the current scenario going gung-ho on small and mid-cap stocks can be more harmful to a focused fund. Ultimately, as mentioned before, how the fund managers construct the portfolio is crucial and remains to be seen.