Kotak Emerging Equity Scheme Review: Will this work in a bear market?

This week, let us look at Kotak Emerging Equity Scheme a mid cap scheme launched in March 2007 with a current AUM of about 4000 Crores (7th the mid cap segment). If someone from Kotak AMC is reading this, please recognise that your website is badly broken. I cannot get to this schemes page, cannot download scheme documents and notices. So I had to piece this review with the information I could find here and there.

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Kotak Emerging Equity Scheme: Investment strategy

The fund was started as a mid cap and small cap fund benchmarked to BSE MidSmallCap Index and due to the SEBI categorization rules had to become a more pre-dominant midcap scheme with NIfty Midcap 100 TRI as the benchmark.

It still takes on significant small cap exposure ( 30% in Aug 2018) and currently 12%. At least at current AUM levels, this would persist for some time but also means higher volatility. It does not have an impressive since inception history with performance picking only in the last 5 years or so.

Five-year rolling returns and risk

The above trend is also seen in the five-year rolling return plot.

Risk-wise the fund has been less volatile than its current benchmark.

Comparison with peers (returns)

We shall now compare Kotak Emerging Equity with its peers in the mid cap space.

Seven years

Five years

Three years

You would hopefully agree that there is nothing spectacularly right or wrong about Kotak Emerging Equity.

Comparison with peers (returns)

In term of risk too, the fund has had a reasonable record although Franklin Prima has a better record.

Summary

I did not enjoy writing this as it was hard to get information from the AMC site. Performance-wise Kotak Emerging Equity is “okay”. Like L&T Midcap Fund (read review here) this too has turned around its performance when the market rallied toward the end of 2013.

How can I choose among these funds If I want to? To answer this, I need to insert another graph. The 3Y rolling return comparison with peers and NIfty 100 Midcap.

I would avoid Axis Midcap and HDFC Midcap Opp (I am talking like a new investor and not an existing one). I prefer performance when the chips are down. So L &T is the winner (in this window) with Kotak second and Franklin third. If you look above, there is not much difference between Kotak and L &T Funds. So it is essentially a coin toss.

Will this work in a bear market?

Just like L&T Mid Cap, I feel Kotak Emerging Equity Scheme is also untested in a bear market or a sideways market. Here Franklin Prima would score due to its large cap tilt. In any case, if you want to choose the Kotak or L&T funds, be ready for a bumpy ride.