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Investors with a high risk appetite wanting to add a pure mid-cap category fund to their portfolio can consider buying the units of Kotak Emerging Equity. The mid-cap index has tumbled almost 12 per cent over the past year, which is comparatively more resilient than the small-cap index, which has plunged 21 per cent.
Investors can make use of the current correction to invest in Kotak Emerging Equity as a diversifier; consider the SIP route to invest. Over the past one year, the fund has declined 9 per cent and has managed to contain the downside slightly better than its category, which has average returns of negative 10.5 per cent; its benchmark, Nifty Midcap 100 TRI, has tumbled 12.2 per cent. The fund has delivered good returns in the long term.
Over three- and five-year periods, it has given annualised returns of 10.5 and 19.2 per cent, respectively, outperforming the benchmark returns of 9.3 per cent and 13.5 per cent.
Kotak Emerging Equity delivers better returns than its benchmark in the bull markets, while also limiting the downsides during market corrections.
The fund has delivered best-in-class returns over five years, and is also a consistent outperformer. The scheme is a diversified equity fund that mainly invests in mid- and small-cap companies.
Kotak Mahindra AMC earlier had an exclusive mid-cap fund, Kotak Midcap, which got recategorised and renamed as Kotak Small Cap after the categorisation and rationalisation of mutual fund schemes. Kotak Small Cap Fund now predominantly invests in the small-cap segment.
Kotak Emerging Equity has managed to cap the downside better than some of its peers — HDFC Mid-Cap Opportunities, ICICI Prudential Midcap and L&T Midcap — over the past one-year period.
The fund predominantly invests in mid-cap companies that are either at their nascent or developing stage and are under-researched.
Though these stocks are reasonably volatile in the short run, they have the potential to deliver higher growth over the long term. The scheme allocates about 73 per cent of its portfolio in mid-caps and 17 per cent in small-caps. However, a minor portion — 6.6 per cent — is parked in large-cap stocks which could help withstand market choppiness.
The fund contains downsides well; for instance, during the 2011 and 2018 market corrections, it limited the fall better than its benchmark. It has been delivering steady returns since 2014. The fund holds about 66 stocks across 25 sectors. It invests in a blend of value and growth stocks.
Portfolio
Industrial products is the top preferred sector, although finance took over for a brief period in 2018. While slightly trimming its allocation to industrial products, finance and pharma sectors, the fund has upped its allocation to banking, cement, consumer durables and ferrous metals over the past six months. It has exited the construction projects sector. The fund predominately follows a buy-and-hold strategy with less churn.
Some of the long-term holdings are Ramco Cements, Supreme Industries and Atul. Some recent additions to the portfolio are Shree Cement, Voltas, Ratnamani Metals & Tubes, and Bharat Electronics; exits are Bajaj Finance and Cholamandalam Financial Holdings.
It is overweight on industrial manufacturing, cement and fertiliser sectors, while underweight on financial services and consumer goods.
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