Mutual Funds

Kotak Standard Multicap: A cautious, low-risk approach

Parvatha Vardhini C | Updated on August 04, 2019 Published on August 03, 2019

The fund has beaten its benchmark over one, three and five years by 1-4 percentage points

Considering the choppy market conditions prevalent currently, funds that contain downsides well are a good bet for investors. Kotak Standard Multicap is one such scheme. Called Kotak Select Focus earlier, the fund underwent a name change after SEBI’s new categorisation norms.

The fund’s strategy hasn’t changed though. It follows a multi-cap approach, investing in stocks across market capitalisations. Over one, three and five years, the scheme has beaten its benchmark — the Nifty 200 TRI — by 1-4 percentage points.

Strategy

Three characteristics mark the fund’s approach towards building its portfolio. One, it is a bit cautious on asset allocation and always has some exposure to cash and debt. The proportion goes up to 12 per cent of the portfolio in volatile/bearish market conditions.

In the choppy markets of 2015 and 2016, for instance, the fund’s equity holdings stayed at 89-95 per cent. Even in bull markets such as 2017, it held its guard, never fully investing in equities.

Two, the fund invests with a large-cap bias. It holds a maximum of only 20 per cent of its portfolio in mid- and small-cap stocks at any point in time.

This comes in handy in volatile times where large-caps contain losses better than mid- and small-caps.

Three, the fund churns sectors well, piling on to defensives in iffy markets. These attributes have helped the scheme outperform its benchmark in volatile years such as 2011, 2013, 2015 and 2016. In the same breath, it must be added that due to its slightly conservative approach, the fund is not a topper across rallies. While it did prove its mettle in the 2014 rally, bettering the benchmark’s return by about 20 percentage points, it just about managed to meet the Nifty 200 TRI’s returns in 2012 and 2017. Yet, over one-, three- and five-year periods, the fund is a top-quartile performer in the multi-cap category.

Thus, it is a good choice for investors who don’t want to miss the upside from having mid- and small-cap stocks in the portfolio, but, at the same time, aren’t game for high risks.

 

 

Portfolio moves

The scheme usually holds a portfolio of 50-60 stocks. It takes 6-7 per cent exposure to its top 2-3 stocks; beyond this, the holdings are well-diversified.

Although the fund’s mandate allows it to bet on select sectors, its sector preferences are fairly well-spread.

Banking has been the top sector over many years. While the fund rightly shed its software holdings to tide over a dull 2017 for the sector, it upped the holdings, in time to benefit from the revival of interest in software stocks.

From 1.7 per cent in the beginning of 2018, the fund’s software holdings have moved up to 8 per cent in the last year.

Recent additions to the portfolio include Kotak Mahindra Bank. As of June 2019, the scheme held 20 per cent in mid- and small-cap stocks, 71 per cent in large-caps and the remaining in debt.

Published on August 03, 2019
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