Kotak Equity Opportunities Fund: Seizing Opportunities Across Sectors

Kotak Equity Opportunities Fund is an opportunities style Large & Mid Cap Fund that has managed to generate benchmark-beating returns over the long run while keeping the risk level low.

Past performance is not an indicator of future returns
Data as on July 26, 2022
(Source: ACE MF)

Kotak Equity Opportunities Fund has a track record of outperforming the benchmark and the category average over longer time periods. Notably, the fund could not fully participate the bull phase of 2020-2021, wherein it trailed its benchmark Nifty LargeMidcap 250 - TRI and many of its peers by a noticeable margin. This has impacted its returns in short to medium term. However, the fund displayed its strength when the market started correcting from October 2021 onwards by limiting the downside risk better than the benchmark and the category average. Over the long-term period of 5-year and 7-year, Kotak Equity Opportunities Fund has outpaced many of its peers while its performance has shown reasonable growth compared to the benchmark.

Its standard deviation of 22.06% signifies that the fund's volatility has been much lower than the category average (23.14%) and the benchmark (23.86%), whereas its risk-adjusted return (Sharpe ratio) that denotes the fund's ability to reward investors is ahead of the category average as well as the benchmark.

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Investment strategy of Kotak Equity Opportunities Fund

Classified under the Large & Mid Cap Funds category, Kotak Equity Opportunities Fund is mandated to invest at least 35% of its assets in large caps with a simultaneous investment of at least 35% in mid-caps. Accordingly, the fund intends to hold a portfolio diversified across market caps. The current investment mandate still allows the fund to continue with its opportunistic investment style where it looks for growth opportunities across sectors by investing in high potential large and mid-cap companies within those sectors.

While selecting stocks for Kotak Equity Opportunities Fund's portfolio, the fund manager follows a combination of the top-down and bottom-up approaches to stock picking. The fund focuses on finding opportunities in certain sectors that the fund manager believes will perform better in the economy and applies the bottom-up approach to pick high potential stocks within those sectors.

The fund manager has the flexibility to invest in a mix of large and mid-cap stocks from various sectors. The allocation between large caps & midcaps broadly depends on the choice of sectors, business environment & valuations. The fund's core portfolio comprises of 5-6 sectors together, totalling around 50-60% of its assets. Kotak Equity Opportunities Fund follows a buy-and-hold strategy for most of its core holdings, with many stocks being in the portfolio for well over 2 to 3 years.

Kotak Equity Opportunities Fund usually holds a well-diversified portfolio of around 50 to 55 stocks. As of June 30, 2022, the fund held as many as 60 stocks in its portfolio, with the top 10 stocks together constituting around 36.9% of its assets. ICICI Bank, SBI, Reliance Industries, SRF, and Infosys currently appear among its top portfolio holdings. Axis Bank, L&T, Linde India, ITC, and Coromandel International, are the other top holdings in the fund's portfolio. Many of these stocks have been part of the fund's portfolio for a long time.

In the last one year, SRF, Linde India, Schaeffler India, Thermax, Bharat Electronics, ICICI Bank, Reliance Industries, SBI, and Bharti Airtel were among the stocks that contributed to the fund's gains, while it lost some value in Gujarat State Petronet, Dr Lal Pathlabs, The Ramco Cement, JK Cement, Max Financial Services, Jindal Steel & Power, and Indraprastha Gas, among others.

Kotak Equity Opportunities Fund's portfolio is skewed towards Banking & Finance and Engineering sector that collectively account for around 41.2% of the portfolio. Infotech, Consumption, Auto Ancillaries, Pharma, Petroleum, Cement, Oil & Gas, and Chemicals are among the other core sectors in the fund's portfolio. The top 10 sectors together account for nearly 75.4% of its assets. Though the fund's portfolio is inclined more towards Cyclicals and Sensitive sectors, it is fairly diversified to Defensive sectors as well.

Suitability

Kotak Equity Opportunities Fund has been capable of generating market-beating returns for its investors at a reasonable risk. While the fund has managed the downside risk well and stood strong during bearish and highly volatile market phases, it has shown fair performance during positive market trends.

Kotak Equity Opportunities Fund carries an impressive track record under the supervision of Mr Harsha Upadhyaya and has turned out to be a rewarding proposition for its long-term investors. The fund manager has done well to keep overall volatility at a reasonable level and has delivered in terms of risk-adjusted returns. The superior long-term performance of the fund has been driven by its smart sector and stock selection strategy.

Kotak Equity Opportunities Fund is suitable for investors looking for a stable Large & Midcap Fund with an investment horizon of at least 5-7 years.

Warm Regards,
Divya Grover
Research Analyst

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Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

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