Kotak Opportunties Fund: Solid track record for this large cap fund

The Kotak Opportunities fund has a solid long term track record of outperformance compared to the category of large cap equity funds and the S&P BSE 100 index. The fund, which will complete 10 years later this year, adopts an active stock picking and sector allocation approach relative to its benchmark index, to outperform the market. The chart below shows the annualized trailing returns of the Kotak Opportunities fund growth option, regular plan, over the last 1, 3 and 5 year time periods, compared to the large cap category and the S&P BSE 100 index. NAVs as on July 15 2014.

Fund Overview

The Kotak Opportunities fund was launched in September 2004 and has done quite well since then. The fund has over Rs 597 crores of average assets under management for the period ending March 30 2014. The expense ratio of the fund is 2.38%. The minimum investment for this fund is Rs 5000. The fund is suitable for investors looking for long term investment objectives, like retirement planning, children’s education, children’s marriage planning etc. Harsha Upadhyaya is the fund manager of the Kotak Opportunities fund. Harsha is a proficient Fund Manager and has delivered strong returns for all the funds that he is managing for Kotak AMC. The fund is open for both growth and dividend options. The NAV of the growth option of the Kotak Opportunities fund was Rs 64.7 and that of the dividend option was Rs 19.8, as on July 15 2014.

Portfolio Composition

The fund has a large cap, growth oriented focus. The portfolio is overweight on cyclical sectors, with sectors like BFSI, Automobile & Auto Ancillaries, Cement, Construction, Oil & Gas and Engineering accounting for nearly 80% of the portfolio value, as on May 31 2014. To balance its exposure to cyclical, the portfolio also has allocations to defensive sectors, with IT, Pharmaceuticals and FMCG comprising nearly 20% of the portfolio holdings, as on May 31 2014. With cyclical sectors poised to do well with the revival in economic growth and capex cycle, the Kotak Opportunities fund is positioned strongly to do well over the short to medium term. In terms of company concentration, the top 5 companies, ICICI Bank, Larsen and Toubro, HDFC Bank, State Bank of India and TCS accounts for only 25% of the portfolio value, as on June 30 2014. Even the top 10 companies account for less than 44% of the portfolio holdings, as on June 30 2014.

Risk and Return

Ever since its inception the Kotak Opportunities fund has consistently given good returns every year, except during the market downturns in 2008 and 2011. In 2013, the performance of the Kotak Opportunities fund was lukewarm, in line with the average returns of large cap funds category and equity markets in general. With the market sentiments improving in 2014, the fund has already given a year to date return of nearly 25%.

While the fund has outperformed the large cap funds category in terms of returns, as shown in Figure 1, the annualized standard deviation of monthly returns of the Kotak Opportunities fund at 16.85% is lower than the annualized standard deviation of monthly returns of the large cap funds category. The Sharpe ratio, which is a measure of risk adjusted returns, of the Kotak Opportunities fund is 0.4. Sharpe ratio is defined as the ratio of excess return (i.e. difference of return of the fund and risk free return from Government securities) and annualized standard deviation of returns. Higher the Sharpe ratio better is the risk adjusted performance of the fund.

Rs 1 lakh lump sum investment in the Kotak Opportunities fund NFO (growth option) would be at a value of nearly Rs 6.5 lakhs as on July 15 2014. The chart below shows the growth of Rs 1 lakh investment in the Kotak Opportunities fund (growth option).

The chart below shows the returns since inception of Rs 3000 invested monthly through SIP route in the Kotak Opportunities fund (growth option). The SIP date has been assumed to first working day of the month. The chart below shows the SIP returns of the fund. NAVs as on July 15 2014.

The chart above shows that a monthly SIP of Rs 3000 started at inception of the Kotak Opportunities fund (growth option) would have grown to over Rs 7.7 lakhs by July 15 2014, while the investor would have invested in total only about Rs 3.6 lakhs. The SIP return (XIRR) is nearly 15% over the last nearly 10 years.

Conclusion

The Kotak Opportunities fund has delivered nearly 10 years of solid performance. This fund has created wealth for its long term investors by giving over the 6 times returns to investors in less than 10 years. It is suitable for investors with a long time horizon, who are looking for capital appreciation with limited downside risks. Investors, who own units of Kotak Opportunities fund, should remain invested as the fund has the potential to deliver strong performance in the medium to long term, as economic growth revives in the country. New investors can also consider investing in the scheme through the systematic investment plan (SIP) or lump sum route. Investors should consult with their financial advisors, if the Kotak Opportunities fund is suitable for their financial planning objectives.