Mutual Funds

Motilal Oswal Focused 25: Credible show in tough times

Anand Kalyanaraman | Updated on May 09, 2020 Published on May 09, 2020

The large-cap-oriented fund has contained losses well in these difficult market conditions

Amidst the market carnage over the past couple of months due to the coronavirus impact, a few mutual funds have fallen lesser than the cohort. Among the relatively better performers is Motilal Oswal Focused 25, a large-cap-oriented focussed fund. The scheme has lost about 17 per cent since the beginning of the calendar, compared with the 22-23 per cent dip in its benchmark (Nifty 50 TRI) and the large-cap category average.

This, along with a relatively better performance in calendar 2019, has resulted in the fund restricting its loss over the past year to about 7 per cent, compared with the 18-19 per cent fall in the benchmark and the category average.

This positions it among the top quartile in the large-cap category over both the short and the long term. Among focussed funds, too, the scheme has done better than most.

After a muted performance in 2018, the fund has outperformed over the past year and a half.

The scheme’s annualised return since its inception in May 2013 is about 10.5 per cent.

Bluechip bets

Many stocks across the board, including quality large-caps, have fallen sharply in the recent past.

With uncertainties galore and the market still in a state of flux, well-run large-cap funds may be a good choice for investors seeking to capitalise on the fall in stock prices, but wanting to play it somewhat safe.

Motilal Oswal Focused 25 is a good choice in the category. A focussed portfolio comprising a maximum of 25 predominantly large-cap, high-quality stocks has held the fund in good stead.

The scheme follows a buy-and-hold approach in a compact portfolio of up to 25 stocks that it thinks have long-term sustainable competitive advantage and growth potential.

A small portfolio (22 stocks as of March 2020) means the scheme takes some concentrated bets.

For instance, Avenue Supermarts accounts for about 11.5 per cent of the corpus as of March 2020, while Kotak Mahindra Bank, ICICI Bank and HDFC Bank account for 7.5-8.5 per cent each.

But the focus on high-quality bluechip stocks mitigates the concentration risk.

 

Portfolio

As per its internal mandate, the fund invests at least 65 per cent of its corpus in the top 100 listed companies by full market capitalisation; the rest can be invested in other smaller stocks (up to 35 per cent), debt and cash instruments (up to 10 per cent) and REITs (real-estate investment trusts) and InvITs (infrastructure investment trusts) (up to 10 per cent).

But the fund generally has a bigger allocation to large-caps (over 80 per cent). As of March 2020, despite the market crash that would have pulled down values, more than 75 per cent of the corpus was in large-caps, about 16 per cent in mid-caps, less than 3 per cent in small-caps, and the rest 6 per cent or so in cash and debt. The fund remains mostly invested in equities across market conditions and does not take big cash calls.

Over the past year, Motilal Oswal Focused 25 has gradually increased its holdings in Avenue Supermarts (DMart). This has contributed to the fund’s relatively better show, given the stock’s resilience during the current weak market conditions.

Despite some moderation over the past year, banks and finance stocks remain the largest sector holdings in the portfolio. The fund has upped its holdings in the defensive pharma sector while pruning holdings in the beleaguered auto and refining sectors, over the past year.

Published on May 09, 2020

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