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 well-managed Large & Mid Cap Fund that seeks growth opportunities across attractive-looking sectors and high-potential companies within those sectors. It has managed to stay ahead of its benchmark over longer periods while maintaining a low level of risk.

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 July 15, 2024
(Source: ACE MF, data collated by PersonalFN) 

Introduced in September 2004, Kotak Equity Opportunities Fund was initially launched and operated as a thematic fund, aiming to capitalise on investment opportunities across various sectors, based on the growth potential of companies within those sectors. Since its repositioning as a Large & Mid Cap Fund in 2018, Kotak Equity Opportunities Fund actively looks for attractive opportunities within specific sectors while maintaining a portfolio that predominantly includes large-cap and mid-cap stocks. The fund is required to invest a minimum of 35% of its assets each in large-cap and mid-cap segments. However, it maintains some flexibility to adjust these allocations based on sector preferences, business environment & valuations, and the overall macroeconomic situation.

With a diversified portfolio comprising approximately 60 to 70 stocks across different market capitalisations, Kotak Equity Opportunities Fund employs a bottom-up investment strategy that has effectively mitigated risk during bearish market phases. 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 across various market phases, thanks to the stewardship of its star 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 highs, resulting in massive growth in its AUM.

In the last 5 years, Kotak Equity Opportunities Fund has generated return of around 25% CAGR which is higher than the 24% CAGR delivered by its benchmark Nifty LargeMidcap 250 – TRI during this period. An investment of Rs 10,000 in the fund, 5 years back, would have now appreciated to Rs 30,564 compared to a valuation of Rs 29,330 for a simultaneous investment in its benchmark.

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	3,290	42.23	26.42	30.19	24.03	18.42	16.98	0.40
HDFC Large and Mid Cap Fund	21,459	37.92	23.77	28.76	20.59	16.86	14.78	0.38
ICICI Pru Large & Mid Cap Fund	14,486	33.78	22.91	28.71	20.48	16.80	13.91	0.42
Bandhan Core Equity Fund	5,360	40.72	24.57	26.73	19.57	16.96	14.57	0.40
UTI Large & Mid Cap Fund	3,441	35.66	20.83	25.73	18.39	15.16	13.98	0.36
SBI Large & Midcap Fund	25,629	26.91	19.11	24.71	19.20	16.69	13.49	0.32
Kotak Equity Opp Fund	24,055	32.56	21.06	24.01	20.24	17.28	13.62	0.37
Nippon India Vision Fund	5,014	34.29	19.52	23.63	17.58	13.75	14.35	0.35
Edelweiss Large & Mid Cap Fund	3,393	30.57	18.52	23.33	19.70	17.53	14.50	0.32
DSP Equity Opportunities Fund	13,093	33.97	19.39	22.76	18.88	16.12	14.46	0.32
NIFTY LargeMidcap 250 – TRI		32.26	19.19	23.83	18.95	16.81	14.88	0.31

The securities quoted are for illustration only and are not recommendatory.
Returns are on a rolling basis and in %. Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised. Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.
Data as of July 15, 2024
(Source: ACE MF, data collated by PersonalFN)
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 outperformed both its benchmark and the category average over longer time periods. However, it faced challenges during the bullish market phase of 2020-21, trailing behind the benchmark Nifty LargeMidcap 250 – TRI and 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 from late 2021 to the first half of 2022, managing downside risk better than the benchmark and the category average.

Moreover, the fund has recorded above-average performance in the last 2-year period and has outpaced the benchmark by over 2 percentage points on a rolling return basis. Over the long-term period of 5-year and 7-year, Kotak Equity Opportunities Fund has outpaced many of its peers and has also stood strong compared to the benchmark.

Its standard deviation of 13.62% signifies that the fund’s volatility has been much lower than the category average (14.69%) and the benchmark (14.88%), whereas its risk-adjusted return (Sharpe ratio) that denotes the fund’s ability to reward investors for the risk taken is currently among the best in the category and much ahead of the benchmark.

What is the investment strategy of Kotak Equity Opportunities Fund?

Classified under 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 still allows 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 the portfolio, the fund manager follows a combination of the ‘top-down’ and ‘bottom-up’ approach to stock picking.

Kotak Equity Opportunities 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 & mid caps broadly depends on the choice of sectors, business environment & valuations. The fund’s core portfolio comprises 5-6 sectors together totalling 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?

Holding in (%) as of June 30, 2024
(Source: ACE MF, data collated by PersonalFN) 

Kotak Equity Opportunities Fund usually holds a well-diversified portfolio of around 65 to 70 stocks. As of June 30, 2024, the fund held as many as 67 stocks in its portfolio, with top 10 stocks together constituting around one-third of its assets. SBI, HDFC Bank, Bharat Electronics, Axis Bank, and ICICI Bank currently appear among its top portfolio holdings. Bharat Forge, Reliance Industries, Linde India, Zomato, and L&T are the other top holdings in the fund’s portfolio. Many of these stocks have been part of Kotak Equity Opportunities Fund’s core portfolio holding for multiple years now.

Names like Bharat Electronics, Cummins India, ABB India, Linde India, L&T, and Jindal Steel & Power have contributed immensely to Kotak Equity Opportunities Fund’s performance in the last 2 years. The fund also benefitted majorly from its holdings in SBI, ICICI Bank, Axis Bank, Bharat Forge, Thermax, Blue Star, and Bharti Airtel, among others.

Kotak Equity Opportunities Fund’s portfolio is skewed towards the Engineering and Financial sectors which collectively account for around 39.3% of the portfolio. Auto & Auto Ancillaries, Pharma, and Petroleum are among 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 Cyclical 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 proven its ability to timely identify and capture available opportunities to generate substantial wealth for long-term investors. In recent years, the fund has greatly benefited from its prudent investment strategies. It boasts an impressive track record under the supervision of Mr Harsha Upadhyaya, who is known for his smart sector and stock selection strategy. The fund manager has effectively managed the overall volatility and consistently delivered decent risk-adjusted returns over the long run.

Kotak Equity Opportunities Fund has been capable of delivering market-beating returns while maintaining a modest level of risk. The fund has effectively mitigated downside risk during bearish and highly volatile market phases, and has also performed commendably during positive market trends. Although the fund may trail the benchmark and some of its peers in the short term, it has the ability to bounce back and reward investors reasonably well over complete market cycles.

Kotak Equity Opportunities Fund is suitable for investors seeking a steady and dependable Large & Midcap fund with an investment horizon of at least 5 years.

Watch this video to find out the best Large & Mid Cap Funds of 2024:

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. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

This article first appeared on PersonalFN here