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Fund Analysis : Kotak Midcap : A Good Quality Midcap Fund
Thu, Jul 11, 2013
Source : Shoaib Zaman, Citrus Interactive

Kotak Midcap is a mid-cap oriented fund with assets under management worth Rs 270 crore (as on March 31, 2013). The fund was launched in January 2005 and is benchmarked against CNX Mid-Cap Index.

Performance

The fund outperformed its benchmark in most of the time horizon. It is only lagging its benchmark in the Year-to-Date (YTD).  The fund has lagged its category average significantly in the YTD and the past one –year time horizon. This could be because of the battered mid-cap space. Since, inception the fund has given middling returns of 11.94 per cent, tad higher than the index in the same period.


Scheme Name

YTD

1 Year

3 Years

5 Years

Since Inception

Kotak Midcap Scheme(G)

-15.03

4.26

1.64

9.12

11.94

CNX Midcap

-13.67

-0.13

-3.35

6.99

11.46

Category Average

-7.23

7.42

1.56

8.60

 

Rank

134 / 146

109 / 144

70 / 129

57 / 118

 

Figures in % as on June 30, 2013; Returns above 1-year in CAGR (Compounded Annual Growth Rate) terms; YTD – Year to date (it represents returns between January 1, 2013 to June 30, 2013)

The fund’s performance has seen many shades of changes over the last five years. The fund saw underperformance against the index in both 2008 and also in 2009. Since then in every consecutive year it has outperformed the benchmark and during 2012 the fund was among the top 10 performing equity diversified fund.

Scheme Name

2008

2009

2010

2011

2012

Kotak Midcap Scheme(G)

-63.43

85.82

28.01

-26.90

50.23

CNX Midcap

-60.23

94.85

19.16

-31.00

39.16

Category Average

-55.79

83.33

19.48

-24.41

34.34

Rank

95 / 110

55 / 123

15 / 131

104 / 139

6 / 143

Absolute Returns;  Figures in %

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

Scheme Name

Standard Deviation

Beta

Kotak Midcap Scheme(G)

0.925

0.722

Category Median

0.932

0.814

 

Risk-adjusted Returns. In terms of measures of risk such as Treynor ratio and Sharpe ratio (measured over last three years) the fund has delivered relatively higher return for risks undertaken in the portfolio vis-à-vis its category median.

Scheme Name

Treynor

Sharpe

Kotak Midcap Scheme(G)

0.010

0.013

Category Median

0.007

0.013

 

Process

The scheme's mandate is to predominantly invest in midcap stocks. For determining midcap stocks, the market capitalisation of companies at the end of every calendar quarter will be considered. 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.

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 investment processes at Kotak Mutual Fund allows the fund manager the freedom to execute his investment strategy within the broad internal and regulatory guidelines. The Fund Manager has a seven member research team forming the core of in-house equity research. The minimum experience of an analyst in the team is eight years.

The fund’s expense ratio is 2.54 per cent which is in-line with the category median. Like most equity diversified funds the fund has an exit load of 1 per cent on or before one year from the date of investment.

Portfolio

As of May 2013, the fund has 60 stocks in its portfolio against the category median of 41. Its average portfolio allocation over the last five years has been 56 stocks. The least number of stocks in its portfolio was during November of 2008 when the count was 34, and the highest count was in November of 2010 at 71.

In the last five years (between June 2008- May 2013), the fund has had an average exposure of 49.50 per cent to large-cap companies. During this period average exposure to mid-cap companies was at 41.82 per cent and approximately 2 per cent to small caps. Its average exposure to cash and cash equivalents during this period has been around seven per cent. It had no exposure to the other equity – consisting of derivatives, preference shares, warrants etc.

As on May 2013, exposure to large-cap was at 51 per cent, mid-cap at 45.46 per cent, small cap at 1.08 per cent and exposure to others (including cash and CBLO) was at 1.58 cent.

The top five sectors in the portfolio as of May 31, 2013 had an allocation of 43.42 per cent. These include Bank - Private, Bank - Public, Pharmaceuticals & Drugs, Consumer Durables - Domestic Appliances and Textile. There were 34 stocks that have found presence in its portfolio during the last 12 months. Put together these stocks have represented 56-67 per cent of the portfolio. Of the 34 stocks, 23 were cyclical stocks accounting for over 40 per cent of the portfolio during the last one year.

Federal Bank accounted for the highest concentration during the last five months, with more than 4 per cent allocation. Prior to that for five months Whirlpool Of India had the highest concentration. The Top 10 stocks account for 32% of the portfolio and the Top 25 account for almost 61.5%. He has chosen good quality mid cap stocks and this explains the outperformance over peer group and benchmark in 2012.  The fund manager had exited a lot of PSU Banks and infrastructure stocks by the middle of 2012 and this aided his performance. However, the portfolio has been quite static in 2013 and the underperformance of the mid cap stocks may have weighed on its returns. However, given the quality of the stocks in the portfolio, one can expect better days ahead for the fund.

Cyclical stocks had exposure levels between 62-to-70 per cent over the last 12 months. This was followed by Defensive where the exposure moved between 13-to-21 per cent, and 12-to-15 per cent was in defensive stocks.

In a bullish market this fund will move up among the top-quartile funds due to high exposure to cyclicals. In a bearish market his ability to quickly churn the portfolio to defensive stocks will only save the day. With an AAUM of 229 crore, this should not be very difficult for the fund manager.

Fund Manager

Since January 2010 this fund is being managed by Pankaj Tibrewal, a vice president at Kotak Mahindra Mutual Fund. He has overall 7 years of experience in fund management area. In his earlier stint, Tibrewal 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, other schemes that he manages are Kotak Opportunities, Kotak Emerging Equity, Kotak Taxsaver, Kotak Balance, Kotak Multi Asset Allocation Fund and Kotak Monthly Income Plan.

View

Being a mid-cap fund, this fund carries higher level of risk, but it has chosen to bet on a good quality midcap portfolio which should be expected to generate an outperformance once the market begins to look up. Investor who can be patient and are keen on the portfolio quality as well as the returns over a period of time should consider investing.
 
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