The Hindu Business Line : Kotak Lifestyle Fund: Invest

The fund takes concentrated exposures in sectors, which increases its risk profile. Investors should ensure that the fund accounts for a small portion of the overall portfolio.

With an absolute return of about 18 per cent since its launch in March 2006, the performance of Kotak Lifestyle Fund appears unimpressive. The fund has, however, delivered strong returns over the past six months and its performance over the next year or two merits watching.

The fund seeks to invest in companies that are beneficiaries of India's consumption boom. For those who have taken a focused exposure to infrastructure funds, funds such as Kotak Lifestyle or Birla GenNext might be considered complementary to their portfolio, as infrastructure and consumption are structural themes that are expected to drive growth over the next couple of years.

Such funds might also be superior alternatives to pure FMCG sector funds as they invest in a broader range of sectors. Unlike a couple of years ago, FMCG is no longer the only option to ride the consumption theme, with opportunities opening up in the retail, media, hotels, tourism and telecom sectors. With most equity funds heavy on infrastructure and capital goods stocks, the fund may serve as a good hedge for the portfolio.

LONG-TERM STRATEGY

However, investors who wish to build a long-term equity portfolio should consider diversified funds ahead of theme funds, as the latter tend to lose appeal once an idea has run its course. As the consumption theme is just evolving, barring FMCG, most sectors are in their infancy.

Kotak Lifestyle will invest predominantly in growth stocks, which means the stock prices of such companies would move up in expectation of higher earnings growth. Failure to meet such expectations will hurt fund performance. The fund also takes concentrated exposures in sectors, which increases its risk profile. Investors should ensure that the fund accounts for a small portion of the overall portfolio.

Performance: The performance in initial months after its launch was lacklustre. After the correction in May-June, however, it picked up considerably. Kotak Lifestyle has delivered a return of 50 per cent over a six-month period, well ahead of the category average of 40 per cent. The return is ahead of Birla GenNext by a couple of percentage points and well over the returns from traditional FMCG funds. ICICI Bank, Reliance Communications and Bharti Airtel were its top picks as of December 31. The three stocks were among the biggest drivers of Sensex gains in 2006.

Picks such as United Spirits and Champagne Indage, from the alcoholic beverages industry, and Deccan Chronicle and TV-18, from the media sector, delivered handsome returns.

Portfolio overview: FMCG, media and banking are the top three sectors and account for about 45 per cent of the assets. Exposure to stocks is, however, capped at about 5-6 per cent. The portfolio is actively churned, and sports some of the top companies across sectors.

It now has a large-cap bias, with about three-fourths invested in stocks with a market capitalisation of more than Rs 5,000 crore.

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