Financial Daily from THE HINDU group of publications
Sunday, Aug 15, 2004
Markets - Interview
`We are confident of making good calls consistently' Mr Ajay Bagga, CEO, Kotak Mutual Fund
Fund houses roll out new products at regular intervals. If you are interested, a fund's name may not really give you a clear picture of how it plans to invest. In this column, we pose a few queries that you, as an investor, may want to ask a fund manager about a new fund.
This week, we feature Kotak Opportunities Fund, an equity fund with a "flexible" investment style. Business Line spoke to Mr Ajay Bagga, CEO Kotak Mutual Fund and Mr Kenneth Andrade, fund manager.
If an investor already holds K-30 or a diversified equity fund, why should he invest in Kotak Opportunities Fund?
To pep up his returns. This is an aggressive fund, with a flexible investment style. The fund manager can invest either in large-cap or mid-cap stocks, in any mix of his choice. He can also have concentrated exposures in some sectors which he feels will outperform the market.
In K-30, the fund manager cannot put more than a fixed proportion in mid-cap stocks; there is also a cap on how much you can invest in a sector. This is a top-up fund, which an investor can own in addition to plain equity funds, if he wants aggressive management.
Funds that went overboard on sectors took a hard knock in 2000. Isn't it better to have sector caps?
If they held on until date, even those investors who invested in 2000 would have earned a positive return. You should be prepared to hold this fund, or for that matter any equity fund, over at least one market cycle.
If you do so, we think a 15-20 per cent return can be obtained from equities. This fund should be able to deliver more, because of the higher risk profile.
Moreover, this fund will not take a sector-specific approach to investing. We believe in picking stocks from bottom up. Today, several funds have 60-70 stocks in their portfolio. We would like to take concentrated bets and hold fewer stocks. Our top three exposures may account for 30 per cent of the portfolio.
You are counting on your fund manager's ability to pick "opportunities" ahead of the market. Can you consistently do this?
We need to pick just two opportunities in a year. We are fairly confident of doing this. We have a good team, which uses relative valuation levels to pick stocks. We have had several good calls over the past year.
For instance, we caught the sugar story last year, because we found sugar stocks traded at market caps that were much lower than their sales. This has paid off in a big way.
Will the portfolio of this fund be aggressively churned?
It will be. But the turnover may not be much higher than that of K-30. Once we spot an opportunity and invest in it, we would like to stay with it until it plays out.
We won't be getting out in-between, unless something drastically goes wrong.
Should a risk-averse investor, say a 50-60-year-old person, invest in this fund?
A 50-60-year-old who already has his annuity sewn up and has surplus funds left over can invest. Investors who do not have a surplus to risk should not.
How much of your portfolio you can put in this fund will depend on your risk profile.
This fund has the leeway to shift up to 35 per cent of your assets into cash. Why do you have this?
This is an enabling clause. We would use it only if we perceive a big downside, from say, a catastrophe.
We would not like to hold cash to time the market; we would like to be fully invested.
Kotak Opportunities Fund's IPO opened on July 27 and closes on August 25. The minimum investment is Rs 5,000. An entry load of 2.25 per cent will be charged on all investments in the fund, even during the initial offer. Readers are requested to compare this IPO with similar products offered by others before they decide to invest.
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