Kotak Select Focus: A safe bet to navigate choppy waters

The fund suits risk-wary investors, given its large-cap slant and smart stock selection

With the stock market touching new highs and valuations moving up sharply for many stocks, some volatility is here to stay.

Kotak Select Focus, a large-cap-oriented fund, is a good bet for investors wanting to play it safe at this juncture.

The fund also navigates choppy markets well by making timely adjustments to its asset allocation and choosing the right sectors and stocks.

Performance and strategy

Kotak Select Focus contains losses in volatile/bearish markets by piling on to cash/debt and also increasing exposure to defensive sectors.

For instance, during the falling markets of 2011, 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 5 percentage points lower than its benchmark — the Nifty 200 index in 2011.

But this slightly conservative approach does not mean that the fund underperforms during rallies. It is quick to make alterations to its portfolio in sync with the market direction — 2012 and 2014 being good examples.

In 2012, it spotted the mid-cap-led rally early enough to push up exposures in this segment. It rode the 2014 rally by betting big on cyclical stocks and also outperformed its benchmark by a whopping 22 percentage points that year.

In the iffy markets of 2015 and 2016 too, the fund has managed to churn out higher returns than both the benchmark and peers such as L&T Equity.

Overall, over the last one, three and five years, the fund has done better than the Nifty 200 index by 7 to 10 percentage points. It also sports higher returns than L&T Equity in this period.

Current portfolio

Considering the volatility in the market, the fund has been holding 90-95 per cent in equities in the last one-two years. This has further been brought down to about 86 per cent in its latest February portfolio.

While it usually takes 15-20 per cent exposure to mid-caps in rallies, the fund is playing it cautious right now, with only about 5 per cent of its equity holdings in mid-cap stocks (market capitalisation of less than ₹10,000 crore). It seems to be making up for this conservative approach by favouring cyclical sectors such as banks, autos and cement. The fund has held 16-19 per cent in banks in the last one year.

Barring SBI, other banks in the portfolio are from the private sector. With valuations zooming for many mid- and small-cap names in the auto and auto component space, the fund has predominantly preferred to stick to bluechips — Maruti Suzuki, Mahindra & Mahinda, Tata Motors, Ashok Leyland and Hero MotoCorp.

Due to headwinds for the Indian IT sector from the changed regime in the US, software holdings have come down by a sharp five percentage points in the last one year.

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