Kotak Select Focus: Smart navigator of choppy markets

Across market cycles, the fund invests mainly in large-cap stocks



With the markets yo-yoing, Kotak Select Focus, a fund that navigates choppy waters well, is a good choice. Launched just after the 2008-09 crash, the fund has contained losses well in volatile markets, such as 2011, 2013 and 2015. It has consistently done better than its benchmark, the CNX 200 index, over one-, three- and five-year periods, to the extent of 5-8 percentage points. In these timeframes, the fund has also fared better than peers, such as Birla Sun Life Frontline Equity, L&T Equity and Canara Robeco Equity Diversified.

Investment style

Across market cycles, Kotak Select Focus predominantly invests in large-cap stocks (market capitalisation of over ₹10,000 crore). While it does take exposure to mid-caps up to 20 per cent of its portfolio, it tweaks its allocations in this space depending on the market situation. In 2012, for example, it spotted the mid-cap-led rally early enough to push up exposure in this segment to 18 per cent. But in the falling markets of 2011 and 2013, the fund took refuge in large-caps and pushed down mid-cap holdings to below 10 per cent.

While it latched on to mid-caps again in 2014, it held on to them even as markets turned choppy in 2015. With large-caps falling more sharply in the last one year, the fund has been able to contain losses much better than the benchmark, thanks to its 16-17 per cent mid-cap exposure in this period.

What have also helped the fund pare losses during market slides are its higher cash and debt holdings. Considering the volatility in the last one year, the fund has steadily brought down equity holdings to around 89-90 per cent of its portfolio now. It held 96-98 per cent in equities in the 2014 rally.

Portfolio

Its sector choices also reflect the fund’s conservative approach. While banks and software are generally the top preferred sectors, Kotak Select Focus increases stakes in defensive sectors, such as pharma and consumer non-durables in falling markets. From around 2 per cent earlier in 2015, holdings in these spaces have been pushed up to about 8 per cent now. In the last one year, it has also gone easy on select banking stocks, thanks to NPA woes. It has reduced stake in SBI, Bank or Baroda, Axis and ICICI Bank while upping it in IndusInd Bank and HDFC Bank. While it cashed in on the zoom in cyclicals in 2014 through auto and auto ancillaries, it has since cut exposure, after valuations inched up for component makers, such as Bosch, and headwinds pulled down two-wheeler players, such as Hero MotoCorp. In the last few months, it has increased holdings in the cement space through JK Lakshmi Cement, Shree Cement and Ramco Cement.

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