Welcome to  PersonalFN’s weekly analysis on diversified equity mutual funds! In this issue, we have analysed Kotak Equity Opportunities Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

Kotak Equity Opportunities Fund is a Large & Mid Cap Fund that has managed to consistently outpace the benchmark over longer time frames, all the while maintaining a low risk level. The fund looks for growth opportunities across attractive-looking sectors and high-potential companies within those sectors.

What is the growth of Rs 10,000 invested in Kotak Equity Opportunities Fund five years ago?

Past performance is not an indicator of future returns
Data as of November 13, 2023
(Source: ACE MF, data collated by PersonalFN) 

Kotak Equity Opportunities Fund was launched in September 2004 as an opportunities-style fund. Its primary objective at the time was to identify investment opportunities across various sectors, based on the performance and growth potential of companies within those sectors. Under its current mandate of Large & Mid Cap Fund, Kotak Equity Opportunities Fund actively seeks attractive opportunities within specific sectors while maintaining a portfolio with a bias towards large-cap and mid-cap stocks. The allocation between large caps & mid caps broadly depends on the choice of sectors, business environment & valuations, and the overall macroeconomic situation.

Kotak Equity Opportunities Fund holds a fairly diversified portfolio of about 50 to 55 stocks spread across market caps by utilising the bottom-up investment strategy. This strategy helped the fund to contain the downside risk during bearish phases. Meanwhile, its focus on identifying quality stocks in high-growth potential sectors has enabled it to participate reasonably during market rallies.

The fund has established a track record of consistent performance, thanks to the stewardship of its fund manager Mr Harsh Upadhyaya, who has been managing the scheme for more than a decade. Mr Upadhyaya has been instrumental in streamlining the investment process and taking the scheme to new heights, which also resulted in massive growth in its AUM (currently at Rs 15,261 crore).

In the last 5 years, Kotak Equity Opportunities Fund has generated a compounded annualised return (CAGR) of around 19%, which is substantially higher than the 17.5% CAGR delivered by its benchmark Nifty LargeMidcap 250 – TRI during the said period. An investment of Rs 10,000 in the fund, 5 years back, would have now appreciated to Rs 23,878 compared to a valuation of Rs 22,356 for a simultaneous investment in its benchmark. Kotak Equity Opportunities Fund has proven its ability to timely identify and capture available opportunities and create significant wealth for long-term investors in the long run.

How has Kotak Equity Opportunities Fund performed in the past?

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
Quant Large & Mid Cap Fund 1,127 19.39 14.65 29.73 20.89 16.92 17.50 0.38
HDFC Large and Mid Cap Fund 11,883 22.85 12.58 29.52 18.86 15.92 16.30 0.42
ICICI Pru Large & Mid Cap Fund 8,847 17.70 11.78 28.56 18.19 15.85 15.45 0.43
SBI Large & Midcap Fund 15,649 13.45 10.00 25.21 17.87 16.02 15.08 0.38
Kotak Equity Opp Fund 15,261 18.52 11.92 23.36 19.00 16.57 13.98 0.37
Axis Growth Opp Fund 9,622 19.93 5.84 22.46 20.48 16.69 0.30
DSP Equity Opportunities Fund 8,850 18.94 8.58 22.38 17.32 15.11 14.86 0.34
Sundaram Large and Mid Cap Fund 5,313 14.15 6.09 21.77 16.46 15.64 15.29 0.34
Mirae Asset Emerging Bluechip Fund 28,104 16.18 5.96 21.58 19.42 18.19 14.82 0.33
Canara Rob Emerg Equities Fund 17,563 11.72 5.09 20.00 17.52 16.62 14.80 0.30
NIFTY LargeMidcap 250 – TRI 17.23 9.09 23.70 17.45 16.34 15.74 0.34

The securities quoted are for illustration only and are not recommendatory.
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as of November 13, 2023
(Source: ACE MF)
Please note, this table only represents the best-performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

Kotak Equity Opportunities Fund has a history of consistently surpassing the benchmark and the category average over longer time periods. However, it’s important to note that during the bullish phase of 2020-2021, the fund couldn’t fully capitalise on the market upswing. It lagged behind its benchmark, Nifty LargeMidcap 250 – TRI, as well as some of its peers, by a significant margin. Though this impacted its returns in the short to medium term, the fund displayed its strength when the market started correcting between late 2021 and the first half of 2022, by limiting the downside risk better than the benchmark and the category average.

Moreover, the fund has recorded above-average performance in the last 1 year and has delivered returns higher than the benchmark. Over the long-term period of 5-year and 7-year, Kotak Equity Opportunities Fund has outpaced many of its peers while its performance has been reasonable compared to the benchmark.

Its standard deviation of 13.98% signifies that the fund’s volatility has been much lower than the category average (15.33%) and the benchmark (15.74%), whereas its risk-adjusted return (Sharpe ratio) that denotes the fund’s ability to reward investors is much ahead of the category average as well as the benchmark.

[Read: Best Large & Mid Cap Mutual Funds to Invest in 2023 – Top Performing Large & Mid Cap Mutual Funds in India]

What is the investment strategy of Kotak Equity Opportunities Fund?

Classified under the Large & Mid Cap Funds category, Kotak Equity Opportunities Fund is mandated to invest at least 35% of its assets in large caps with a simultaneous investment of at least 35% in mid-caps. Accordingly, the fund intends to hold a portfolio diversified across market caps. The current investment mandate enables the fund to continue with its opportunistic investment style where it looks for growth opportunities across sectors by investing in high-potential large and mid-cap companies within those sectors.

While selecting stocks for Kotak Equity Opportunities Fund’s portfolio the fund manager follows a combination of the top-down and bottom-up approach to stock picking. The fund focuses on finding opportunities in certain sectors that the fund manager believes will perform better in the economy, and applies the bottom-up approach to pick high-potential stocks within those sectors.

The fund manager has the flexibility to invest in a mix of large and mid cap stocks from various sectors. The allocation between large caps & midcaps broadly depends on the choice of sectors, business environment & valuations. The fund’s core portfolio comprises 5-6 sectors that collectively account for around 50-60% of its assets. Kotak Equity Opportunities Fund follows a buy-and-hold strategy for most of its core holdings with many stocks being in the portfolio for well over 2 to 3 years.

What are the top portfolio holdings in Kotak Equity Opportunities Fund?

Graph 2Graph 2

Holding in (%) as of October 31, 2023
(Source: ACE MF, data collated by PersonalFN) 

Kotak Equity Opportunities Fund usually holds a well-diversified portfolio of around 60 to 70 stocks. As of October 31, 2023, the fund held as many as 66 stocks in its portfolio, with the top 10 stocks together constituting nearly 34.2% of its assets. ICICI Bank, Maruti Suzuki India, SBI, Axis Bank, and L&T currently appear among its top portfolio holdings. Linde India, Bharat Forge, ITC, Bharat Electronics, and Reliance Industries are the other top holdings in the fund’s portfolio. Many of these stocks have been part of the fund’s core portfolio holding for a long time. Notably, the fund has restricted allocation in each stock to under 5%.

Names like Linde India, L&T, Bharat Electronics, ITC, and Thermax have contributed immensely to Kotak Equity Opportunities Fund’s performance in the last 2 years. The fund also benefitted majorly from its holdings in Jindal Steel & Power, Blue Star, Schaeffler India, ABB India, ICICI Bank, and Cummins India among others, while it booked substantial profit in Mankind Pharma, Cholamandalam Financial Holding, Techno Electric & Engineering Company, Polycab India, Supreme Industries, and Page Industries, among others.

Kotak Equity Opportunities Fund’s portfolio is skewed towards the Financial and Engineering sectors which collectively account for 39.2% of the portfolio. Auto & Auto Ancillaries, Consumption, Pharma, Cement, and Infotech are the other core sectors in the fund’s portfolio. The top 10 sectors together account for about 75% of its assets. Though the fund’s portfolio is inclined more towards Cyclicals and Sensitive sectors, it is fairly diversified to Defensive sectors as well.

Is Kotak Equity Opportunities Fund suitable for my investment goals and risk tolerance?

Kotak Equity Opportunities Fund has a proven history of delivering returns that outperform the market while maintaining a modest level of risk. The fund has not only effectively mitigated downside risk during bearish and highly volatile market phases, but has also demonstrated commendable performance during positive market trends. Even though the fund has trailed the benchmark in the recent bull phase, it has outpaced several of its peers by a decent margin. The fund has the ability to reward investors reasonably well over complete market cycles.

Kotak Equity Opportunities Fund carries an impressive track record under the supervision of Mr Harsha Upadhyaya, who is known for his smart sector and stock selection strategy. The fund has greatly benefited from its prudent investment strategies in recent years. While the fund remains heavyweight on cyclicals to ride the market boom and rallies, it also makes good use of defensives during extreme market conditions. This helps the fund perform well across market phases and reward investors over complete market cycle.

Kotak Equity Opportunities Fund is suitable for investors looking for a stable and reliable Large & Midcap fund with a long-term view of at least 5 years.

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

This article first appeared on PersonalFN here

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