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With the stock markets moving sharply up one day and moving down steeply the next, funds that navigate iffy market conditions well are a good buy at this juncture. Kotak Standard Multicap is one such. Launched just after the 2008-09 market crash, the fund contained losses well in falling and volatile market conditions which prevailed in 2011, 2013, 2015 and 2016. Earlier known as Kotak Select Focus, the fund underwent a name change after SEBI’s new classification norms. However, its characteristics remain the same.
Strategy and performance
Kotak Standard Multicap contains losses in volatile/bearish markets by piling on to cash/debt and also increasing exposure to defensive sectors. Besides, the fund also sports a tendency to allocate a higher proportion to large-cap stocks, which contain losses better than mid- and small-cap stocks. It holds a maximum of 20 per cent of its portfolio in mid- and small-cap stocks at any point in time.
These factors helped the fund during the falling markets of 2011, where the fund held 8-12 per cent in cash and debt, and increased exposure to the defensive consumer non-durables and pharma spaces. Thanks to this, the fund lost about 4 percentage points less than its benchmark — Nifty 200 TRI — in 2011.
Reducing mid- and small-cap exposures helped the fund protect the downside in the sideways market of 2013. In the choppy markets of 2015 and 2016, the fund’s equity holdings stayed at 89-95 per cent.
Due to its slightly conservative approach, the fund is not an outperformer across rallies. While it did prove its mettle in the 2014 rally, bettering the benchmark’s return by about 20 percentage points, it just about managed to meet the Nifty 200 TRI’s returns in 2012 and 2017. Partly due to its underperformance in 2017, the fund’s one-year return also lags its benchmark.
Besides, even as the markets have punished mid- and small-cap stocks in the correction so far in 2018, the fund has not brought down its holdings in this space. It stood steady at about 17-18 per cent in this period. This has also pulled down its one-year performance. However, the fund boasts of a good long-term track record, beating the returns of its benchmark by five percentage points over a five-year period.
Portfolio
Although the fund’s mandate allows it to bet on select sectors, the fund’s sector holdings are fairly diversified. Banking has been the top preferred sector over many years.
While the fund rightly shed software holdings to tide over a dull 2017 for this sector, it has now upped software holdings, in time to benefit from the revival of interest in software stocks this year. From 1.7 per cent in the beginning of 2018, the fund’s software holdings stand at 8 per cent now. The fund has raised stake in Infosys and re-entered TCS in the last few months.
It holds 6-8 per cent in its top 2-3 stocks; beyond this, holdings are well spread across 50-60 stocks
Recent entrants include GAIL, AU Small Finance Bank, Lupin and Techno Electric & Engineering. As of September 2018, the fund holds 94.6 per cent in equities and 18.5 per cent in mid- and small-cap stocks.
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