Kotak Equity Opportunites Fund Review: A Steady performer

Kotak Equity Opportunites Fund is an open-ended large and midcap fund. In this review, we study how consistently the fund has performed when compared with its benchmark and category peers

Published: November 3, 2019 at 11:15 am

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Kotak Equity Opportunites Fund is an open-ended large and midcap fund. In this review, we study how consistently the fund has performed when compared with its benchmark and category peers. Launched in Sep 2004 as  Kotak Opportunites Fund with the freedom to invest across market cap and sectors, it became a large and midcap fund since May 2018.

According to SEBI regulations, the fund shall hold a minimum of 35% largecap and 35% midcap stocks. It can also hold as much as 30% smallcap stocks or up to 30% in bonds. The fund currently has an AUM of Rs. 2,614.21 Crores.

As per the scheme document, The asset allocation and stock sector allocation will depend on macroeconomic trends and the fund managers view of their future potential. Stocks will be selected on a bottom-up basis (fundamentals first, sector second).

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Benchmarked against the Nifty 200 TRI (although it can predominantly invest in the top 250 stocks by market cap), the fund has managed to stay in the top 10 when comparing category returns over the last 1,3,5 and 10 years. Hence a closer look is warranted.

Kotak Equity Opportunites Fund has been a fully invested equity fund with an average equity exposure of 94% since Dec 2009. These are the top few sectors.

Sector allocation history of Kotak Equity Opportunites Fund

Kotak Equity Opportunites Fund: Market Cap History

The allocation to large cap, mid cap and small cap stock since July 2017 is shown below. The fund has not been affected much by the change from a diversified equity fund to a large and mid cap fund and holds a large slice of mid caps. This can change with market conditions.

Market cap history of Kotak Equity Opportunites FundExpense Ratio History

We recently reported wild fluctuations in the direct plan expense ratio of many funds: Why SEBI should stop frequent mutual fund expense ratio changes. Perhaps due to low AUM growth in this fund, the direct plan expense ratio has been reasonably stable.

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Expense Ratio and AUM history of Kotak Equity Opportunites FundPerformance Analysis

First, we consider how Kotak Equity Opportunites Fund has fared against Nifty 200 Total Returns Index. We shall consider every possible 3,5 and 7-year returns. The number of return data points is mentioned as a number within each plot. For example, over three years, both the index and the fund lines have 2623 data points.

Kotak Equity Opportunites Fund vs Nifty 200 Rolling Returns History over three years Kotak Equity Opportunites Fund vs Nifty 200 Rolling Returns History over five years Kotak Equity Opportunites Fund vs Nifty 200 Rolling Returns History over seven years

Kotak Equity Opportunites has displayed steady outperformance over seven-year periods. The margin of outperformance has neither been overwhelming or underwhelming.  Next, we repeat the same analysis with peers.

Clearly Kotak Equity Opportunites is similar in nature to DSP Equity Opportunites, while Canara Robeco Emerging Equity has significantly outperformed, the returns have been a lot more volatile (see the spread in returns between maximum and minimum). This is also true of Mirae (a much younger fund) over three and five years.

The possible reason for this outperformance can be seen from the historical large, mid and small cap allocation of these funds.

Historical Large Cap Allocation of peers in the large and mid cap categoryThe outperformers – Canara Robeco and Mirae funds were essentially Mid cap and small cap funds in the past. Hence a comparison is not particularly fair.

Historical Mid Cap Allocation of peers in the large and mid cap category Historical Small Cap Allocation of peers in the large and mid cap categoryKotak Equity Opportunites Fund has had a significant large cap tilt in the past. So going forward, it may be a lot more volatile. The reverse is true for the Mire and Canara Robeco funds.

Can I invest in Kotak Equity Opportunites Fund?

If you prefer a less popular steady performer then this fund would be a good fit.  It has increased its mid cap performance so expect it to be a bit more volatile in future. Its long term outperformance is better than short term, so a good amount of patience is necessary to hold this fund.

We also saw that the large and midcap funds from Mirae and Canara may not match their past performance due to a change in market cap allocation.

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M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Linkedin
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1 Comment

  1. Hello sir,

    Does this also include Kotak ace classic opprtunities fund? It is a ULIP fund. Is it similar to the one you are discussing here?

    Thanks
    Rahul

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