A consistent benchmark-beater with a flexible investment approach – if these are attributes you seek in a mutual fund, then consider Reliance Equity Opportunities. The fund’s annualised return since inception in 2005 is a healthy 21 per cent.

It has figured in the top quartile of its category (multi-cap funds) over the past one-, three- and five-year periods.

Also, the fund has comfortably outperformed its benchmark (BSE 100) across these time periods — with a margin of 7-16 percentage points.

Its winning consistency is borne out by its annual rolling returns which have been higher than that of its benchmark 84 per cent of the time over the last five years.

But investing in Reliance Equity Opportunities requires stomach for risk.

Not being tied down by restrictive investing mandates gives this multi-cap fund flexibility to choose stocks across categories and investing styles.

This ‘go-anywhere, do-anything’ nature allows the fund to place significant bets on mid- and small-cap stocks, which can be quite volatile.

This is reflected in the fund’s superior outperformance during market rallies than in market downturns.

As of May 2014, nearly a third of Reliance Equity Opportunities’ portfolio comprised stocks which are in the mid-cap and small-cap categories (market capitalisation of less than ₹7,500 crore).

So, the SIP route which makes the most of market swings is the safer way to invest in this fund.

Adroit stock picks have helped Reliance Equity Opportunities deliver a healthy 53 per cent return over the last one year.

More hits than misses For instance, before cyclical stocks became the flavour of the season, the fund was quick off the block in raising stakes in stocks such as Bharat Forge and Alstom T&D, which have at least doubled in the last one year.

New picks such as Voltas also stood the fund in good stead. Good selections more than made up for bad choices such as exiting Mahindra CIE Automotive prematurely.

Increasing stakes in cyclical sectors such as banks, industrial capital goods and construction paid off for the fund last year.

Reliance Equity Opportunities’ long-term holdings such as HCL Technologies, Cummins India and Divi’s Labs have appreciated significantly over the past few years, helping the fund’s three- and five-year performances. The fund takes cash calls when the going in the market is not good.

For instance, in September 2011 when the market was on a low, more than 11 per cent of the fund’s portfolio was in cash.

But now, with the market on an uptrend, the fund is fully invested, predominantly in equities. Its largest holding (18 per cent) is in banking stocks, which should do well if the economy picks up as expected.

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