Kotak Standard Multicap Fund Review: Too much AUM, too soon?

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This is a performance review of Kotak Standard Multicap Fund, previously known as Kotak Select Focus Fund.  As on date, this fund has consistently outperformed its benchmark in terms of risk and reward. However, the fund has swelled in AUM rapidly and this now has the highest AUM among diversified equity funds (excluding SBI Nifty 50 ETF). Does this influence performance?

The SEBI re-categorization did not affect the fund too much, and it still operates on paper as a fund that can invest across market cap and across sectors with a blend of growth and value styles. It has diluted its mandate of focussing on specific sectors after the SEBI regulations and also perhaps due to its increasing AUM.

Consider this:

  1. As on Jan 31st 2016: AUM  3,841.35 Crores
  2. As on Jan 31st 2017: AUM 7,850.84  Crores
  3. As on Jan 31st 2018: AUM 17842.85 Crores
  4. As on Nov. 30th 2018: AUM 21,469.29 Crores

So essentially a doubling in less than a year bet 2016 and 2018 (a 6X increase in this period!)

Kotak Standard Multicap Fund: Performance Review

Kotak Standard Multicap Fund vs Nifty LargeMicap 250 (screener results)

For Dec 2018, I used the Nifty LargeMidcap 250 index to screen multicap funds. Nifty LargeMidcap 250 index is 50% of NIfty 100 and 50% of Nifty 150 Midcap. Here are the results for Kotak Standard Multicap Fund. You can download the Dec 2108 freefincal fund screener to come up with such results.

  • One year: Beat index 881 out of 1216 times (72%) with 77% downside protection consistently (meaning fund will fall less than the index)
  • Two years: Beat index 747 out of 967 times (77%) with 96% downside protection consistency
  • Three years: Beat index 639 out of 722 times (89%) with 100% downside protection consistency
  • Four years: Beat index 476out of 476 times (100%) with 100% downside protection consistency
  • Five years: Beat index 234 out of |234 times (100%) with 100% downside protection consistency

The last couple of years’ performance is still impressive and 100% outperformance over 4 and 5 years is more because of less no of data points.

Risk and return performance: one year

We shall now look at 1,2,3 and 4 year rolling risk and return performance. While the above data gives you a measure of overall consistency, it does not tell you when the outpeformance or underperformance occurred.

The fund uses Nifty 200 as a benchmark. In addition, I have considered, Nifty 100, Nifty next 50, Nifty largemidcap 250 as additional benchmarks.

1 year rolling return for Kotak Standard Multicap Fund

Each coloured line above has 1238 (see picture) one year return data points.

1 year rolling risk for Kotak Standard Multicap Fund

Each of the 1238 data point above represents the standard deviation of standard deviation of daily returns over a one-year period. Lower the curve falls, lower the risk. Now observe similar data over 2,3 and 4 years

Risk and return performance: two years

2 year rolling return for Kotak Standard Multicap Fund

2 year rolling risk for Kotak Standard Multicap Fund

Risk and return performance: three years

3 year rolling return for Kotak Standard Multicap Fund

3 year rolling risk for Kotak Standard Multicap Fund

Risk and return performance: four years

4 year rolling return for Kotak Standard Multicap Fund

4 year rolling risk for Kotak Standard Multicap Fund

Observations

If we consider the 2,3 and 4 year data, notice that the outperformance margin has noticeably dipped in the last few months. Is this a too much, too soon, AUM effect? My guess would be yes although it is impossible to say for sure.

One way to check is compare performance with Mirae Asset India Equity Fund (I am an investor in this fund) which also has a terrific record in this category.

Kotak Standard Multicap fund vs Mirae Asset India Equity Fund

Volatility-wise Kotak Multicap is better than Mirae India Equity. Regarding returns, the pink line (Kotak Multi-cap) has dipped just below the white line (Mirae India Equity) in the last few months. Again not conclusive, but it is fair to suspect “the too much, too soon” effect playing a role here.

I have pointed out earlier that large AUM is not a problem but a large increase in AUM in a short time is a problem – for the fund manager in find opportunities. It is possible that the pressure has showed over the last year or more. This is the reason I keep saying prefer low AUM consistent performers and avoid herding.

I am an investor, what should I do?

The fund management has just about held its head above water. Perhaps one reason is because it always had a well-diversified portfolio. So stay invested, but keep an eye on performance, give Kotak Standard Multicap Fund 3 years to perform from when you invested (more on this next week) and if not satisfactory, exit and move on.

I do not have this fund in my portfolio. Is it worth considering?

The first question you should ask is, do I need this kind of fund in my portfolio. IF yes, then avoid Kotak Standard Multicap Fund, and look for an alternative in this category from the Dec 2108 freefincal fund screener.

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman is the co-author of two books: You can be rich too with goal based investing and Gamechanger. “Pattu” as he is popularly known, publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis, including a robo advisory template for use by beginners. Contact information: freefincal {at} Gmail {dot} com He conducts free money management sessions for corporates (see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints.

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6 Comments

  1. Hi Pattu – Like others I started with many and small&mid cap funds. But eventually learned the way to trim down the portfolio. But stuck with dsp small cap. I know you do not like this kind, but is it possible to for you to review it and share your thoughts. Started investing in this fund five years back.

  2. Dear Mr. Pattu

    You said that do not take monthly dividend payout option in Balanced advantage funds.

    You will loose your wealth

    Can you explain further.

  3. Pattu sir,
    Does one with 10 + year horizon with flair for little risk taking ability need to have a large and midcap fund(eg mirae asset emerging bluechip) exposure as well to his portfolio or he is good with having multicap + midcap combination ? I may not have understood the rationale of this large and midcap category as multicap already has mix of large and mid cap . Also since around 50 % or so large cap returns largely driven by some 10 companies or so …isn’t it a overlap among the large cap , large and midcap , multicap categories especially on the large cap portion of these categories ?

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