NFO Analysis: Kotak Focused Equity Fund
Kotak Mutual Fund, one of the fastest growing AMCs, in terms of quarterly average asset under management has launched Kotak Focused Equity Fund, an open-ended equity scheme. The new scheme started for subscription on 25 June 2019 and will end on 9 June 2019. This is a focused fund that will invest maximum in 30 stocks. The fund will follow a multi-cap strategy to build the portfolio and will be investing in large-cap, mid-cap, and small-cap category. This means the fund will have no market cap bias. This is the third fund house in last one year that has launched the fund under focused fund category. This category of funds is required to invest a minimum of 65 per cent in equity and equity-related instruments.
Objective: It is an open-ended equity scheme investing in maximum 30 stocks in large-cap, mid-cap and small-cap category. The primary objective of the scheme is to generate long-term capital appreciation by investing in these companies.
Strategy: The fund will invest in high-quality companies that are available at a reasonable price. To find such companies, the fund will start with entire listed companies. The first filter it applies is the company should have a market cap of more than Rs. 1,400 crore. There are currently 653 such companies. Out of this, only 327 companies go for the next round of filter, which are under their research. Finally, from this, they will come out with 45-70 ideas in which the final investment will be made.
The companies thus selected should be exhibiting the following qualities. The company should have a sustainable business, better allocation of capital reflected in higher ROCE, better corporate governance and finally, these companies should be available at a reasonable price.
Fund Manager: The Scheme will be together managed by Shibani Kurian and Harish Krishnan. Another fund managed by Shibani Kurian is Kotak India Equity Contra fund that has AUM of Rs. 852 crore at the end of June 2019 and has given a return of 7.32 per cent in the last one year compared to its benchmark that generated 10.10 per cent in the same period. Harish Krishnan manages four other funds having a total AUM of Rs. 6,752 crore and average return generated by these funds are 7.35 per cent.
Our Recommendation:
One of the reasons why focused fund has been launched now is due to the narrowing of the market movement. There are few companies that are leading growth in indices while other companies are lagging in their movement. Therefore, a focused fund in these times is expected to perform better than other multi-cap funds. In last one year, on an average 36 multi-cap funds have generated a return of 6.15 per cent compared to 6.94 per cent generated by focused funds.
Although the focused funds have been generating better returns than multi-cap funds, this fund is not advisable for everyone. Since these funds take quite a concentrated risk any bad selection is likely to spoil the returns. Hence, focused funds, in general, are for moderate risk takers.
Performance of Focused Funds
Funds | NAV (Rs) | Fund Manager | AUM(in Rs. cr) | Expense Ratio (%) | Return (%)3 month | Return (%)6 month | Return (%)1 yr | Return (%)2 yrs | Return (%)3 yrs |
Axis Focused 25 Fund(G) | 28.74 | Jinesh Gopani | 7977.5 | 2.08 | 5.7 | 6.96 | 4.89 | 11.99 | 15.98 |
BNP Paribas Focused 25 Equity Fund-Reg(G) | 9.84 | Abhijeet Dey | 249.3 | 2.5 | 2.85 | 7.77 | 3.24 | - | - |
Franklin India Focused Equity Fund(G) | 42.7 | Anand Radhakrishnan | 8653.3 | 1.85 | 2.86 | 11.14 | 14.52 | 8.96 | 12.23 |
HDFC Focused 30 Fund(G) | 80.16 | Vinay R. Kulkarni | 475.4 | 2.86 | 2.35 | 7.46 | 7.31 | 3.73 | 8.97 |
IDFC Focused Equity Fund-Reg(G) | 37.06 | Sumit Agrawal | 1646.3 | 2.14 | 1.37 | 4.84 | -5.44 | 4.08 | 12.36 |
IIFL Focused Equity Fund-Reg(G) | 16.84 | Prashasta Seth | 182.5 | 2.4 | 6.07 | 17.14 | 16.22 | 10.98 | 14.29 |
L&T Focused Equity Fund-Reg(G) | 10.97 | Soumendra Nath Lahiri | 616.1 | 2.55 | 1.55 | 7.18 | - | - | - |
Mirae Asset Focused Fund-Reg(G) | 10.72 | Gaurav Misra | 949.5 | 2.17 | - | - | - | - | - |
Principal Focused Multicap Fund(G) | 65.28 | Dhimant Shah | 333.1 | 2.6 | 2.95 | 5.6 | 8.1 | 8.14 | 11.31 |
Quant Focused Fund(G) | 32.22 | Sanjeev Sharma | 4.2 | 2.48 | 1.63 | 2.99 | 2.69 | 6.36 | 9.54 |
Reliance Focused Equity Fund(G) | 48.14 | Vinay Sharma | 4518.5 | 2.09 | 0.79 | 7.69 | 6.55 | 4.97 | 10.42 |
SBI Focused Equity Fund-Reg(G) | 145.57 | R. Srinivasan | 4634.4 | 2.03 | 3.01 | 9.72 | 11.26 | 13.38 | 14.2 |
We believe before investing in any fund you should check if it suits you in terms of risk and return. For someone who believes that he needs focused funds in his portfolio, there are other funds with a longer history to analyse and choose from.