With the market near its peaks, less volatile large-cap funds may be good for investors seeking to play it somewhat safe. Motilal Oswal MoSt Focused 25 is a fine choice in this category.
The fund is relatively young; just about four years old. But its strong performance during this period provides comfort. With annualised return of over 17 per cent since inception in May 2013, the fund has beaten its benchmark Nifty 50 convincingly — by over 6 percentage points.
Not only has the fund outperformed the benchmark during market upsides (for example, from February 2016 until now) but it has also contained downsides better (from January 2015 to February 2016).
On a one-year daily rolling return basis, MoSt Focused 25 has done better than the benchmark almost 80 per cent of the time since its inception. The winning consistency would have been better but for a few months of under-performance in the middle of last year. The performance has picked up since.
The fund is also a top quartile performer in the large-cap category with annualised return of about 27 and 19 per cent over one and three years. This is better than the performance of peers such as Axis Focused 25. The fund has lagged DSP BR Focused 25 over a three-year period, but done better the past year.
Going by its mandate, MoSt Focused 25 has been following a pure-large cap strategy. This could cap returns during raging bull runs but is safer in overheated markets.
Its mandate requires a compact portfolio of less than 25 stocks; it currently has just 17. While this helps in focused investing, it also entails concentration risk. Also, while the fund’s growth investing approach could bag big winners, it could also mean some seemingly expensive bets.
But the fund has managed these risks well with its focus on quality large-caps. Its largest bets (8-10 per cent each of the portfolio) are in bluechips HDFC Bank, Maruti Suzuki, Kotak Mahindra Bank and HPCL — these have yielded rich growth.
Its small corpus (less than ₹500 crore) has contributed to the fund’s relatively high expense ratio (about 2.7 per cent for regular plans) but this is mitigated by a buy-and-hold approach, implying less portfolio churn. The fund remains almost fully invested in equity (95-100 per cent) with exposure to cash increased during volatile markets (as in December 2016).
Besides picking up big winners such as Eicher Motors and PSU oil marketing stocks over the past three years, the fund has also timed its exits well, getting out of stocks such as Cairn India and Idea Cellular.
Over the past year, the fund has sharply reduced exposure to the aviation sector (IndiGo Airlines). Stake has also been cut in the beleaguered software sector. On the other hand, exposure has been increased to the oil refining, banking, finance, insurance and auto sectors, which are on the growth path.
Late last year, Siddharth Bothra, who was co-fund manager, became the lead fund manager, replacing Taher Badshah who resigned from the company. Gautam Sinha Roy joined as co-fund manager. The changes have not impacted the fund’s performance, indicating a process-driven approach.