Motilal Oswal Most Focused Multicap 35 Fund: Just 3 but shining like a pro

A correction is due, say some experts. But the market rather than slowing is scaling new peaks. In uncertain times like these, a multi-cap fund with the flexibility to switch between relatively safe large-cap stocks and riskier mid-cap ones seems a smart bet.

Motilal Oswal Most Focused Multicap 35 Fund is a fine choice in this category.

The fund is just over three years old, but its solid performance since inception in April 2014 places it in the top quartile among multi-cap funds. The fund’s annualised returns since inception are about 32 per cent, more than double the benchmark Nifty 500’s 16 per cent. It has been a consistent winner, doing much better than the benchmark during both market downsides (January 2015 to February 2016) and upsides (February 2016 until now). On a one-year daily rolling return basis, MoSt Focused Multicap 35 has beaten the benchmark all the time since its inception.

The fund follows a growth investing approach and bottom-up stock selection; it is focused on investing in a few select quality stocks available at reasonable price.

That said, it does not mind paying premium valuations for stocks with high growth prospects. This is reflected in the fund’s top holdings such as HDFC Bank and Maruti Suzuki. While it has the leeway to invest in up to 35 stocks and also put up to 10 per cent of the corpus in foreign securities, the fund has just about 20-22 local stocks.

This compact portfolio allows for optimum risk diversification, says the fund manager Gautam Sinha Roy. A small portfolio increases concentration risk but this is mitigated by high-quality stock selection. A buy-and-hold strategy keeps portfolio churn under check. This, along with a reasonably large corpus size (about ₹6,500 crore as of April 2017) has helped keep the fund’s expense ratio below the category average.

The fund remains almost fully invested in equity with minimal cash exposure (less than 1 per cent of the corpus).

Over the past three years, stocks such as Eicher Motors, Ajanta Pharma and HPCL have delivered strongly for the funds. It has also invested in winning initial public offers such as Avenue Supermarts and Manpasand Beverages.

The fund manager perceives better opportunity in large-cap stocks now. So, exposure to mid-caps has been pared to about a quarter of the corpus currently. There have been notable sector rotations too over the last year. From being overweight on software stocks, the fund has exited the sector completely, given the structural challenges facing it. Exposure to the airline sector has also been reduced, due to weak financial performance.

On the other hand, the fund is bullish on banking (mostly private ones) and financial stocks and has upped exposure sharply to nearly 45 per cent of the corpus currently. The next largest exposure is to pharma stocks; but the fund is keeping watch on the troubles in the sector.

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