Kotak Equity Opportunities Fund: Finding Opportunities in Scalable & Competitive Businesses

Kotak Equity Opportunities Fund is an opportunities style Large & Mid-cap fund that has generated market-beating returns across various time frames while keeping the risk level low. The fund looks for opportunities across various sectors that look promising based on the performance and potential of companies within the sectors and growth pattern in the economy.

Data as on September 22, 2021
(Source: ACE MF)

Barring the last one year period, Kotak Equity Opportunities Fund has outperformed the benchmark and the category average across time frames. Over the longer 2-year to 7-year returns basis, Kotak Equity Opportunities Fund has outperformed the benchmark by a noticeable margin, while at the same time it has managed to maintain a significant lead over many of its peers. Its outperformance in the last couple of years has helped it figure among the top quartile performers and has even scaled up its performance across time periods.

Kotak Equity Opportunities Fund has achieved this outperformance with a fair level of stability. Its standard deviation of 21.8% signifies that the fund's volatility has been lower than the category average (22.9%) and the benchmark (22.5%), whereas its Sharpe Ratio that denotes a fund's ability to reward investors with higher risk-adjusted returns is among the best in the category.

Investment strategy of Kotak Equity Opportunities Fund

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

While selecting stocks for portfolio, the fund manager follows a combination of the top-down and bottom-up approach. The focus is 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 allocation between large-caps & mid-caps broadly depends on the choice of sectors, business environment, and valuations. The fund's core portfolio comprises of 5-6 sectors that collectively account for around 50%--60% of its assets. The fund follows a buy-and-hold strategy for most of its core holdings with many stocks being in the portfolio for well over 2-3 years.

Kotak Equity Opportunities Fund usually holds a well-diversified portfolio of around 50 to 55 stocks. As on August 31, 2021, the fund held as many as 56 stocks in its portfolio, with the top 10 stocks together constituting around 38.5% of its assets. ICICI Bank, Infosys, SBI, L&T, and SRF currently appear among its top portfolio holdings. TCS, Bajaj Finance, HDFC Bank, Reliance Industries, and Gujarat State Petronet were the other top holdings in the fund's portfolio.

Kotak Equity Opportunities Fund invests around 50% of its assets in large-cap stocks with around 40% in mid-cap stocks. Large-cap and mid-cap names like SRF, Infosys, TCS, ICICI Bank, Dr Lal Pathlabs, Linde India, Jindal Steel & Power, Ultratech Cement contributed immensely to the fund's performance in the last one year.

Kotak Equity Opportunities Fund's portfolio is skewed towards the Banking & Finance, Engineering, and Infotech sectors that collectively account for around 51.7% of the portfolio. Cement, Auto Ancillaries, Oil & Gas, Pharma, Consumption, and Petroleum products are among the other core sectors in the fund's portfolio. The top 10 sectors together account for nearly 80% of its assets. Though Kotak Equity Opportunities Fund's portfolio is inclined more towards Cyclicals and Sensitive sectors, it is fairly diversified towards Defensive sectors as well.

Suitability

Belonging to a process-driven fund house and being managed by an experienced fund manager, Kotak Equity Opportunities Fund is well placed to capture attractive opportunities across sectors and reward investors with superior risk-adjusted returns in the long run.

The portfolio of Kotak Equity Opportunities Fund is diversified across range of stocks. Kotak Equity Opportunities Fund remains heavyweight on cyclicals to ride the market rallies. It also optimally utilises defensives during extreme market conditions. This helps the fund perform well across market phases. However on the broader level, the portfolio is skewed towards a few sectors. Although these have together helped the fund drive through the past market rallies, the fund may feel the pressure resulting in short-term underperformance if one or more heavyweight sector moves out of favour.

Kotak Equity Opportunities Fund is suitable for aggressive investors aiming for long term wealth creation by investing in a balanced portfolio of large-cap and mid-cap stocks.

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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