Kotak Select Focus: BUY. Makes the most of market moves

Launched just as the markets were gaining steam after the 2008-09 crash, Kotak Select Focus sports a promising performance record. The fund has consistently outpaced its benchmark by a huge margin.

It has also handled market rallies and downswings well by making timely adjustments to its asset allocation and by latching on to the right sectors and stocks.

Kotak Select Focus is benchmarked to the CNX 200 index. Over one-, three- and five-year timeframes, the fund has outperformed its benchmark by 7-25 percentage points.

During these periods, its returns have been better than those of some established funds, such as Canara Robeco Equity Diversified and Birla Sun Life Frontline Equity. Over longer timeframes, it is among the top quartile of diversified equity funds and is a worthy addition for investors looking to expand their mutual fund investments.

The fund impresses with its ability to make alterations to its portfolio in tune with the market direction.

For instance, during the falling markets of 2011, the fund lost about 5 percentage points lower than its benchmark. This it managed by holding 8-12 per cent in cash and debt and by increasing exposure to the defensive consumer non-durables and pharma spaces.

In the rally that followed in 2012, it was quick to step up on equities and that too, rightly on mid-caps. Mid-cap exposure, which normally constitutes only up to 10 per cent of the fund’s equity portion, went up to 18 per cent in 2012.

In the last one year, stakes in cyclical sectors such as auto, auto ancillaries and cement were increased.

Bets on stocks such as JK Lakshmi Cement, Shree Cement,Bosch, Motherson Sumi, Maruti Suzuki and MRF, which have more than doubled in this period, worked well for the fund.

The fund retains its liking for cyclicals in its latest portfolio, with banks, auto, auto ancillaries and cement constituting half its equity holdings right now.

Software also appears among the top sectors but it constitutes only 10 per cent now, compared with 17 per cent a year ago.

With prices of most cyclical stocks skyrocketing in the last one year based on high earnings expectations, the fund appears to be reducing risks by bringing down mid-cap exposure.

From about 15 per cent in mid-2014, holdings in mid-caps have come down to 10 per cent now.

It has also fully/partially exited a few multi-baggers, such as Voltas, KEC International, AIA Engineering and Finolex Cables.

COMMENT NOW