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The markets have done precious little over the past 18 months on an overall basis, though there have been considerable gyrations in this period.
Given the time and value corrections that have happened in equities across the broader market, investors can perhaps consider the large and midcap space in the current environment.
In the large and midcap fund category, Kotak Equity Opportunities could be considered by investors with a medium-risk appetite for the long term.
The fund delivers steady rather than spectacular returns and generally manages an above-average show over the long term. Kotak Equity Opportunities does not strictly fall into any specific investment style, but usually follows a buy-and-hold approach, without rapid churning or switching of sectors or stocks.
The scheme is especially good at containing downsides during corrective markets and may be a good addition to your portfolio, especially as several local and global macroeconomic uncertainties loom.
A long horizon of 7-10 years and investment via the SIP (systematic investment plan) route is likely to deliver healthy outcomes for investors.
Steady performance
Kotak Equity Opportunities isn’t a chartbuster that delivers superlative returns. It is instead geared to deliver stable returns that beat the benchmark over the long term.
Consider the rolling returns data over the period 2013-2023. If we take the five-year rolling data over this 10-year period, the fund has delivered an average return of a little over 15 per cent. This is higher than what peers such as DSP Equity Opportunities and Edelweiss Large & Midcap funds managed.
Kotak Equity Opportunities’ benchmark — Nifty Large Midcap 250 TRI — managed 14.2 per cent over the same period. On a rolling five-year returns basis over 2013-2023, the fund has beaten its benchmark over 80 per cent of the times, indicating a fair degree of consistency.
The scheme’s SIP returns (as of April 4) over a 10-year period is a healthy 15.5 per cent. When we take the upside and downside capture ratios, which reflect the performance of a fund in relation to its benchmark during rallying and correcting markets, the fund’s utility becomes clear.
The upside capture ratio is 91, indicating that it rises less than the benchmark during upmoves. But the downside capture ratio is 81.9, suggesting that Kotak Equity Opportunities falls a lot less than the Nifty Large Midcap 250 TRI during corrections. A score of 100 indicates that a fund performs in line with its benchmark.
Stable portfolio management
Kotak Equity Opportunities does not load up on sectors or stocks that could gain temporarily from market momentum or after a major disruption and reset event such as the Covid-19 pandemic.
Unlike many other funds, it did not increase exposure to public sector companies, pharma and other rallying stocks after the deep market correction in March 2020. The fund instead stuck to structural long-term plays, which may have been the reason for its underperformance in the 2020-21 rally.
Kotak Equity Opportunities keeps banks, industrial products, capital goods, cement and software among its top holdings over the years. It generally prefers to invest in the top few players of any sector that it invests in.
So, SBI, HDFC Bank, ICICI Bank, TCS, Infosys, Reliance Industries, Bharat Forge, AIA Engineering and ITC are some key names that find themselves in the portfolio.
The fund does not majorly churn sectors and stocks and maintains a stable portfolio. The one shift that Kotak Equity Opportunities did do increased large-cap exposure and reduce midcaps.
Over the last few years, from nearly half the portfolio being held in midcaps and a bit in small caps, the fund now has around 55 per cent in large-cap stocks. It maintains a fairly diffused portfolio with almost no stock accounting for more than 5 per cent of the overall holdings.
For those seeking a bit more than average returns and who can take moderate risks, Kotak Equity Opportunities would be a suitable pick for the long term.
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