When the markets tumble relentlessly, investors hunt for schemes that can cushion falls better than others. Kotak Classic fits the bill in such a context.
The scheme, which was known as Kotak Contra earlier, has a large-cap bias and its investing style is a blend of value and momentum. A portion of its portfolio also indicates a contrarian stance.
Kotak Classic has witnessed a significant improvement in performance over the past couple of years. Over one-, three- and five-year timeframes, it has outperformed its benchmark, CNX 500.
In the last five years, the fund has delivered a compounded annual return of 7.8 per cent that places it in the mid-quartile of schemes in its category.
It has done better than all the contra funds (SBI Contra and UTI Contra, among others) as well as schemes such as DSPBR Opportunities, Kotak Opportunities and ICICI Pru Top 200 over this period.
While the fund manages to match or marginally fall short of its benchmark during bull cycles, it loses much less during bear phases.
In the last couple of years, it has done well even during market rallies such as the one witnessed during a good part of 2012.
It must be noted, however, that over the long-run, the fund delivers steady returns and not something that is spectacular or top-of-the-chart.
Investors with a moderate risk appetite can park small sums in the fund as a diversifier.
PORTFOLIO AND STRATEGY
Kotak Classic invests predominantly in large-cap stocks, which account for around 80 per cent of its portfolio. The average market capitalisation of stocks in the fund’s portfolio is over Rs 52,000 crore.
It churns the sectors in its portfolio based on both value and momentum. For example in 2011 and 2012, it had pharma, power and consumer non-durables among its top holdings. As valuations soared, it reduced weightage to pharma and FMCG sectors and increased exposure to software and petroleum products.
While the software sector may be a defensive, valuations are still reasonable in the segment and may hold greater potential in the light of a weak rupee and stable business prospects. Reforms in energy pricing are expected to benefit the petroleum and oil and gas segments. Banks have remained its top holding across cycles, as is the case with most funds.
What Kotak Classic also does when markets fall or go into a corrective mode is to increase the cash and debt position in its portfolio. In the volatile markets that persisted in 2011 and even in the current volatile phase, debt and cash account for over 11 per cent of its assets. This helps protect downsides for the fund.
The allocation to individual stocks, barring a couple, is kept to less than 5 per cent, thus avoiding any concentration risks. The fund maintains a compact portfolio of 40 stocks. Invest in it if you are looking for average returns and protection from downsides.
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