Consistent performer across cycles

The fund has the ability to contain downsides and participate strongly in upsides

Motilal Oswal Focused Multicap 35 Fund, a relatively young fund started in April 2014, has kept up its steady good performance even amid the recent market volatility.

With an annualised return of about 18 per cent over the past year, 15 per cent over the last three years and 28 per cent plus since inception, the fund has beaten its benchmark Nifty 500 total return index (TRI) comfortably and is in the top quartile in the multi-cap category. On a one-year daily rolling return basis, the fund has beaten the benchmark all the time since inception.

While a quarter or so is a short period to judge performance, it provides comfort that the fund has lost far less than the benchmark and most of its peers since last December. In the previous market downside too (January 2015 to February 2016), the fund contained losses effectively. It then went on to ride the upside (February 2016 until January 2018) smartly, racing ahead of the benchmark and most peers. The fund seems a good core portfolio fit for long-term investors.

Large-cap exposure

Its multi-cap mandate gives Motilal Oswal Focused Multicap 35 the flexibility to invest across the market-cap spectrum, an advantage it has used to good effect. With the sharp-run in the market and high valuations, especially in mid-caps, the fund pared exposure to such stocks to under 10 per cent of the corpus last year. It has since inched up to about 12 per cent currently.

In the past, mid-cap exposure has gone up to 20 per cent of the corpus, providing a kicker to returns during bull runs. The chunk of the portfolio, though, has been in large caps, shielding the fund from the impact of market volatility.

The fund can invest in up to 35 stocks and deploy up to 10 per cent of the corpus in foreign securities. But for quite some time now, it has restricted itself to 20-25 local stocks, a level Fund Manager Gautam Sinha Roy feels, provides adequate diversification at optimum risk. Nearly 99 per cent of the investment has consistently been in equity.

The risk from a relatively small portfolio is mitigated by the fund’s bottom-up stock selection, focussing on quality stocks with good growth prospects available at what it perceives as a reasonable price. That said, the fund does pay top dollar for high-growth market leaders such as Maruti Suzuki.

A buy-and-hold strategy keeps portfolio churn under check. The expense ratio (about 2.4 per cent in the regular plan) is below the category average.

Promising picks

Motilal Oswal Focused Multicap 35 also invests in initial public offers (IPOs) it finds promising. IPO picks such as Manpasand Beverages, PNB Housing Finance and Alkem Labs have paid off quite well over the past three years.

Last year, the fund added blue-chips such as Titan Company, TCS and Petronet LNG to its portfolio. Exposure to IndiGo Airlines was again upped with the airline’s improving fortunes. Maruti Suzuki, which continues to be on a roll, also found higher play.

On the other hand, stake was reduced in stocks such as HDFC Bank, IndusInd Bank and Bajaj Finance that have seen a strong run up. The fund also exited from SBI, Lupin and Advanced Enzyme Technologies, stocks that have been under pressure.

In terms of sector rotation, exposure to banking and pharma stocks was cut last year, while finance and software stocks got a leg-up. Finance stocks now account for the largest holding, followed by banking stocks.

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