Multi cap opportunities funds: A mixed bag:: Business Line

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Schemes such as Reliance Equity Opportunities and Mirae Asset India Opportunities consistently surpassed benchmark returns.

The performance of diversified, multi-cap equity funds did not keep pace with their large-cap and mid-cap counterparts over one-, three- and five-year periods.

An analysis of multi-cap/opportunities funds, which aim at maximising returns by investing in the most promising sectors at any given time, reveals this.

On a one- and five-year basis, these funds on an average, delivered returns lower than their benchmark, BSE200 Index. However, these funds did manage to better benchmark returns on a three-year basis. But as an exception, schemes such as Reliance Equity Opportunities and Mirae Asset India Opportunities consistently surpassed benchmark returns.

Reliance Equity Opportunities delivered the highest returns in the category. The fund gained 47 per cent in the last one year. Other schemes that delivered higher-than-benchmark returns include Tata Equity Opportunities and Mirae Asset India Opportunities.

Differential allocation across sectors and stock selection made the difference.

For instance, the performance of Reliance Opportunities rebounded in November 2009, after the fund reduced exposure to cyclical sectors such as metals and construction, and increased allocation towards consumer discretionary, healthcare and IT.

In addition, choosing the right stocks also lent a helping hand. For instance, exiting stocks such as Jaiprakash Associates, Bharat Earth Movers, NITCO and buying into stocks such as Divis Labs, Sanofi and State Bank of India drove up the fund’s returns.

WRONG CALLS

Thanks to the timely exit from underperforming stocks and sectors, the fund continued to top the list on a three- and five-year basis too. Mirae Asset Opportunities also delivered consistent returns across all the three periods.

But there were consistent under-performers too. DWS Investment Opportunities, for instance, lost the most on a one-, three-and five-year basis.

The reasons were obvious, wrong choice of sectors and stocks. For instance, during the period April 2009-December 2012, lower-than-benchmark exposure to IT stocks dragged the fund’s performance.

As a result, IT stocks contributed a meagre 4.6 per cent to the fund’s total return, compared with 10.3 per cent contribution to the benchmark’s return.

It was a mixed bag for a few funds. For instance, though UTI Opportunities outpaced the benchmark returns on a three- and five-year basis, it lagged BSE 200 Index on a one-year basis. Similarly, even as HSBC India Opportunities managed to beat benchmark returns on a three-year basis, it delivered lower returns on a one- and five-year basis.

DWS Investment Opportunity, which topped the laggards’ list, gained a meagre 0.7 per cent annually over the last three years.

Higher exposure to cyclical sectors such as construction, engineering and metals and lower allocation towards defensive sectors such as healthcare and IT dragged the fund’s returns.