Kotak 50: INVEST. Steady in volatile times

In an environment marked by increasing volatility and with the markets gyrating wildly, investments in companies that have reasonable earnings visibility and cash flows may be appropriate for investors across the board. In this light, investments can be considered in the units of Kotak 50, a large-cap fund that invests in stocks from the Nifty basket.

The scheme has improved its performance significantly over the past couple of years and especially rode the 2012 rally quite well. Over one-, three- and five-year timeframes, the scheme has outpaced its benchmark, Nifty, to the tune of 1-4 percentage points.

Over the past five years, the fund has managed compounded annual returns of 4.3 per cent, which places it higher than peers such as Reliance Vision and UTI Top 100. Kotak 50 is generally a mid-quartile performer among funds in its category and may be well geared to give steady rather than spectacular returns. It can be a suitable diversifier to the portfolio for investors with moderate risk appetite and looking to avoid too much volatility. Investors can also park small sums in the form of SIPs (systematic investment plan) in the fund.

Portfolio and strategy

Kotak 50 manages to take judicious calls with respect to churning of its sectors. Over the past few years, the fund has been able to ride market cycles by adopting a combination of momentum and valuation.

For example, the fund had consumer non-durables and software among its top sectors in 2011-12 as most stocks in this space rallied significantly. Later it reduced exposure to these stocks and increased weightage to banks as stocks in the space corrected and offered an attractive entry point. Petroleum products too have found favour in recent times as the sector witnessed deregulation and moved towards market-driven pricing.

The fund takes exposure to pharma selectively, but this sector generally figures prominently in the portfolio.

Kotak 50 generally contains downsides quite well. It falls 2-5 percentage points less than the Nifty when markets nosedive, 2008 and 2011 being cases in point.

But the same cannot be said of its performance in cases of rallies following immediately a slump, where the fund tends to lag behind.

The only risky part about the scheme is that it takes concentrated exposure in its top few stocks, going up to 7-8 per cent of the portfolio.

Most stocks in its portfolio are from the Nifty index, with some interesting picks from outside the index such as DB Corp, Future Retail and Federal Bank. Over the long-term the fund can be a good bet to derive steady returns.

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