Fund Call. Kotak Emerging Equity: A mid-cap to spice up returns

Mid-caps have been on a roll in recent years. While the spectacular run calls for caution, investors with a high-risk appetite wishing to spice up their portfolio returns can consider Kotak Emerging Equity as a diversifier.

The fund has a consistent long-term record and improved its performance over the last three years. A diversified equity fund that primarily takes exposure in mid and small-cap companies, it is benchmarked against S&P BSE Mid & Small Cap Index.

Kotak Emerging Equity has managed to outperform its benchmark 84 per cent of the time on a rolling one-year return basis over the past four years. After under-performing in 2013, the fund ramped up its performance in subsequent years,.

However, the fund has delivered 30.4 per cent returns over last the one year, marginally underperforming its benchmark return of 31.4 per cent.

Nonetheless, the fund delivered better returns than the category average of 28.7 and has outshined the benchmark over three and five-year periods by 7 percentage points. It has maintained its top quartile position in these periods. The fund maintains its equity allocations between 90 and 98 per cent . Once in a while when the markets turn choppy, it takes derivative exposure.

Kotak Mahindra AMC has an exclusive mid-cap fund, Kotak Midcap, which has outperformed the Kotak Emerging Equity over a one-year period. However, Kotak Emerging Equity has done better in the long run, say, three and five-year, periods given its small-cap tilt. Similarly, the fund has beaten seasoned mid-cap funds such as HDFC Mid-Cap Opportunities and Birla Sun Life Midcap over a three-year period.

Given the on-going market correction and sharp fall in the mid- and small-cap space, investors can opt for the SIP route.

Although the fund had not contained the downside well in 2008 and 2013, its performance has improved thereafter. In 2014, the fund clocked 87 per cent returns against the mid-cap average gains of 64 per cent. It has been posting good returns since 2014. Kotak Emerging Equity holds about 60 stocks across 26 sectors.

Industrial products became the top preferred sector in early 2015 and continue to retain its position. Stocks such as Fag Bearings India and SKF India, which the fund had purchased in 2014 and 2013 respectively, have turned out to be multi-baggers. In the last one year, it had exited power sector and added transport to its kitty.

The fund predominately follows a buy-and-hold strategy with less churning of stocks. It also follows a bottom-up stock picking approach. The fund has the flexibility of increasing its exposure to large-cap stocks up to 35 per cent that helps during market volatility. Moreover, it takes stock-specific approach in the under-performing software and pharma sectors. It holds stocks such as Persistent Systems, Laurus Labs and Strides Shasun. The fund is underweight on global commodities, consumer staples and real estate. .

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