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Kotak Midcap Scheme: A Fund that rides with the Bulls
Fri, Dec 18, 2015
Source : Khyati Shah, Citrus Interactive

Kotak Midcap Scheme is an open-end diversified equity mid cap fund. The fund aims to generate capital appreciation from a diversified portfolio of equity and equity related securities. The fund was launched in February 2005 and is benchmarked against the NIFTY MIDCAP 100 Index. The fund has an AUM of Rs. 354 crores as on November 30, 2015 which has gone up by 11 crores as compared to last year November 30, 2014 (Rs. 344 crores).

 

Performance

Kotak Midcap Scheme has a very good performance track record of consistently outperforming its benchmark index and the equity diversified category average across all time frames as shown from the table given below. Its performance since inception has been better than its benchmark by over 1.91 percentage points. It has been in the top quartile of its peer-set across all time frames as shown from the table given below.

Scheme Name

YTD

6 Months

1 Year

2 Years

5 Years

Since Inception

Kotak Midcap Scheme (G)

6.68

3.15

9.95

40.28

14.1

16.8

NIFTY MIDCAP 100 Index

5.28

0.52

6.94

31.27

8.26

14.9

Category Average

3.31

-1.03

3.42

28.68

11.68

NA

Rank

35/158

25/161

29/158

27/148

35/136

NA

Figures are in % as on November 30, 2015; Returns above 1-year in Compounded Annual Growth Rate (CAGR)

When we look at the calendar year returns it’s quite clear that this fund has beaten its benchmark in all the last five calendar years. It has beaten its category average in the year 2010, 2012 and 2014 but it has underperformed in the year 2011 and 2013. The fund has been in the top quartile of its peer-set in three of the last five years (excluding the year 2011 and 2013) - typically in years when the market rallied.

Scheme Name

2010

2011

2012

2013

2014

Kotak Midcap Scheme(G)

28

-26.9

50.23

-4.91

74.02

NIFTY MIDCAP 100 Index

19.16

-31

39.16

-5.1

55.91

Category Average

19.64

-23.95

34.05

5.43

53.99

Rank

14/131

107/138

6/142

143/146

26/149

All figures in %

Risk: In terms of measures of risk such as standard deviation (measured over last three years), the fund has taken higher risk compared to the category whereas in terms of beta (measured over last three years) the fund has taken lower risk.

 

Standard Deviation

Beta

Kotak Midcap Scheme(G)

0.98

0.8

Category Median

0.95

0.89

Risk-adjusted Returns: In terms Treynor and Sharpe ratio (measured over last three years), the fund has provided slightly higher risk-adjusted returns than the category median.

 

Treynor

Sharpe

Kotak Midcap Scheme(G)

0.11

0.09

Category Median

0.08

0.08

 

Portfolio Characteristics

Sector Concentration:  The fund’s concentration in the top 3, 5 and 10 sectors is significantly lower than the category median highlighting lesser risk of the fund.

 

Top 3

Top 5

Top 10

Kotak Midcap Scheme(G)

27.49

38.39

59.34

Category Median

36.74

49.66

70.24

Company Concentration: The concentration of funds in top 3, 5 and 10 companies in its portfolio is also significantly lower than the category median highlighting lesser risk of the fund.

 

Top 3

Top 5

Top 10

Kotak Midcap Scheme(G)

10.15

15.62

27.94

Category Median

18.65

27.14

44.23

Lesser Sector & and Company Concentration signifies the low risk profile of the fund.

Number of equity holdings: The fund currently holds 58 stocks in its portfolio (November 30, 2015), which is higher than the median stock count for the diversified-equity category, which currently stands at 45. Thus, based on equity count the fund runs a diversified portfolio compared to its peer set. Over the past five years the fund has always had a diversified portfolio with the number of equity holdings over this period averaging 60. Thus, based on criteria such as equity count, sector concentration and company concentration, one can conclude that the fund runs a well-diversified portfolio.

Cash allocation: Its cash allocation at the end of November 2015 was 1.71 per cent. The average cash allocation for last five years is 2.34 per cent. Its maximum allocation to cash over last two years was 3.31 per cent in December 2014 and lowest was 0.97 per cent in June 2014 and March 2015. In 2015 it had an average cash allocation of 2.19 per cent. Thus on the whole the fund maintains little allocation to cash.

Portfolio characteristics: The top 5 sectors in the portfolio had an allocation of 34.54% which is lower than the category average of 48.77%. The top 5 sectors include Engineering - Construction, Film Production, Distribution & Entertainment, Refineries, Chemicals and Forgings.

The fund’s exposure to cyclical stocks currently is 72.58% followed by Defensives with 13.32% and Services with 12.25%. The Top five holdings are Techno Electric & Engg. Company Ltd. (Merged), IndusInd Bank, Ramco Cements, Finolex Cables and Solar Industries (India).

In the last six months the fund has bought stocks of Container Corporation of India Ltd., Hindustan Petroleum Corporation Ltd., Pennar Engineered Building Systems Ltd., Power Mech Projects Ltd., PVR Ltd. and Techno Electric & Engg. Company Ltd. (Merged).

Stocks of Arvind Infrastructure Ltd., Bajaj Finserv Ltd., Oriental Bank Of Commerce, Shree Cement Ltd., and Titan Company Ltd. have been dropped from the portfolio.

 

Process

The portfolio of Kotak Midcap Scheme will comprise predominantly of midcap equity stocks and there would be Moderate to High risk on account of Price Fluctuations and Volatility. For determining midcap stocks, the market capitalisation of companies at the end of every calendar quarter will be considered. This is unusual as most fund houses have a predefined and explicit definition of what they consider mid caps. Here, the investors will need to depend on disclosure from the AMC every year. The scheme will aim to invest predominantly (65 per cent) in the mid cap stocks. Beyond 65 per cent can be invested in the other market capitalization or for defensive purpose it can also invest in debt and money market securities. The ability of the Midcap companies to withstand the changes in business cycle is limited, which may also lead to higher volatility in the stock prices of such midcap stocks. Since this is not a sector scheme and plans to invest across sectors, the Concentration and Sector Risks are low.

It is stated that the portfolio turnover of the fund will not exceed 250 per cent (excluding the turnover on account of investment in debt and money market instrument or the turnover caused on account of fresh purchases and redemptions by unit holders).

The fund’s expense ratio is 2.51% which is much higher than the category average of 2.36%. Like most equity funds the fund has an exit load of 1 per cent on or before one year from the date of investment. Minimum investment in the fund is Rs 5,000.

 

Fund Manager

Pankaj Tibrewal is a vice president at Kotak Mahindra Mutual Fund. He has overall 10 years’ experience in fund management area. He graduated in Commerce from St. Xavier’s College, Kolkata and holds a Masters degree in Finance from Manchester University, UK. He has been associated with the mutual fund industry since 2003 where he has managed several debt and equity schemes. Pankaj’s earlier stint was with Principal Mutual Fund where he was managing schemes like Principal Emerging Bluechip, Principal Tax Saver and MIPs since 2003. He had a good track record in Principal MF. He joined Kotak AMC from January 2010 as an Equity Fund Manager where he manages schemes like Kotak Midcap, Kotak Emerging Equity and Kotak Monthly Income Plan.

 

View

Kotak Midcap Scheme has a good performance track record. It seems to outperform its peers in bull markets. Being a mid-cap fund, this fund carries higher level of risk, but it has chosen to bet on a diversified and good quality midcap portfolio which should be expected to generate an outperformance. Investors who can be patient and are keen on the portfolio quality as well as the returns over a period of time should consider investing.

 

To read the previous Citrus Analysis of Kotak Midcap Scheme

Click here

 
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