Fund Call. Motilal Oswal MOSt Focused 25: Focus on the long term

In the nearly three-and-a-half years since its inception, Motilal Oswal MOSt Focused 25 Fund has done quite well — beating its benchmark Nifty 50 by more than 10 percentage points on an annualised basis. With annualised returns in the past three years in excess of 22 per cent, the fund also figures in the top quartile among its large-cap peers.

Its performance would have been more impressive but for the somewhat weak show over the past year. The fund’s performance last year was only marginally better than the benchmark and lagged the category average. The winning consistency over the benchmark, in terms of one-year daily rolling return, fell from 90 per cent until last year to less than 60 per cent in the past 12 months. That said, a year is a short period to judge a fund and its bets need to be given time to play out.

With its portfolio holding less than 20 stocks, the fund runs the risk of a few bets not doing well and dragging down returns. Over the last year, industrial cyclical stocks such as Cummins India and Bharat Forge lost ground and impacted overall performance. With exposure to such stocks cut down in favour of auto and pharma stocks, the fund seems to be regaining its mojo, beating the benchmark and category by a wide margin in the past quarter.

Short-term ups and downs aside, the fund’s strong show over long periods across cycles gives comfort. Doing much better than its benchmark and peers, it gained solidly during the rally between August 2013 and January 2015, and also contained downsides effectively during the market weakness until February 2016. A pure large-cap focus helps contain downsides and mitigates risks from a concentrated portfolio. Since inception, almost all of the fund’s stock picks have gained, with some such as HPCL and Eicher Motors turning multi-baggers over the past three years. Well-timed exits from stocks such as Cairn India and ONGC, before the oil rout, helped.

A growth-investing approach with a focus on quality stocks has held Motilal Oswal MOSt Focused 25 in good stead. It has done better than similarly themed peer Axis Focused 25 over the past three years, but has lagged DSP BR Focus 25; until last year, it did better than both. The fund has a relatively short vintage compared with peers but shows promise.

It remains almost fully invested in equities with allocation to cash equivalent securities less than 2 per cent for the most part. Banks, mostly private sector ones that should do well as economic growth picks pace, account for the largest sector allocation currently (a quarter of the portfolio), followed closely by the auto sector which is having a great run.

Conspicuous are the large bets (8-9 per cent each of the portfolio) in some high-quality stocks such as HDFC Bank, Maruti Suzuki, Kotak Bank, Eicher Motors and Britannia Industries.

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