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Mutual Fund Review: Kotak Opportunity Fund

Given Kotak Opportunity's growth-oriented strategy, the fund seems to be good for the long term

 

LAUNCHED in April 2004, Kotak Opportunity was one of the early entrants in the category of opportunity theme based fund that sought to cash in on the future opportunities in the market. The response to the fund was lukewarm initially and so the scheme could only manage 250 crore of asset under management (AUM). However, over the years, its impressive performance has earned it more than 1,130 crore of AUM in the kitty.

PERFORMANCE:

Kotak Opportunity has consistently outperformed the major market indices, the Sensex and the Nifty, and its benchmark S&P CNX 500 by reasonable margins. The exception was in 2008, when it failed to cushion the returns and fell more than the market indices as well as its benchmark.


   Also, during the three years ended 2008, its performance was rather erratic. For instance, in 2006, when due to euphoria markets were on a bull run, the fund returned just about 39% against 36% by the benchmark. The Sensex and the Nifty had returned about 46% and 39%, respectively then. In 2007, the fund came into the limelight by generating as much as 91% return, which was double the returns generated by the Sensex. The benchmark S&P CNX 500 had also returned just about 62% then. However, the fund lost its sheen the very next year with the market crash as the fund failed to cushion its fall.


   In 2009, the fund moved more or less in tandem with major market indices, shuffling among the various market capitalisations with an aim to improve its returns. However, this strategy has paid off in the current financial year.

PORTFOLIO:

Kotak Opportunity Fund's portfolio is far away from being called an opportunities fund. This is due to the mandate of 40% ceiling on mid and small-cap stock exposure that the fund follows. On an average, the fund's portfolio comprises minimum 60% large-cap stock that in most occasions rise to 80%.

   The portfolio is well diversified with more than 60 stock holdings and exposure to a single stock is restricted to about 5%, barring a few large-caps stocks including Reliance Industries, Bharti Airtel and so on.


   As far as sectoral composition is concerned, the fund has a high exposure in financial, and oil & gas in the past one year. However, there has been a shift to low beta sectors like healthcare and IT. This has reduced the risk appetite of this multi cap fund and it now commands a beta of 1.03 times, implying that the fund's performance is aligned with that of the market.


   Apart from this, the fund manager affirms to be bullish on cement, capital goods and FMCG sectors. This is quite evident in the fund's portfolio, with the cement sector gaining its place back in the portfolio after a break of six months and growing exposure of the FMCG sector. Currently the fund's portfolio turnover ratio is 2.5 times, which implies an average holding period being not more than 3-4 months. Only a handful of stocks, including L&T, Reliance Industries and ONGC, have been in the portfolio for more than two years now. However, according the fund manager, the heavy churning has been in practice from the past eight months only and is limited to high volatile sectors like metal and capital goods.

OUR VIEW:

Opportunity funds are a good option, especially in the current market scenario, as they seek to benefit from the next possible trigger at the market place. However, the fund has positioned itself in the category of the large-cap funds and so not been able to leverage on mid-cap stock bull run. However, despite this, there is no denying that the fund has been an outperformer for a while. Given its growth-oriented strategy, the fund might be a good bet in the long term.

 

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