Stock markets have not just recovered from their March 2020 lows but have also nearly doubled since then. This has led to unease among many about whether the rally will sustain or not.

In this scenario, equity investors seeking to play it safe can consider deploying money in a staggered way in large-cap stocks through the systematic investment plan (SIP) route. Kotak Bluechip Fund is a large-cap scheme with a reasonably good track record and can prove to be a safer bet for investors in the current ambiguous times.

Kotak Bluechip (earlier known as Kotak 50) follows a strategy of investing in sectoral leaders for advantages such as better pricing power and higher earnings visibility.

There is a special emphasis of investing in companies that will likely see improvements in return ratios and those firms that have invested in their business as well as cut operating costs in the downturn.

The fund, managed by Harish Krishnan since January 2014, is playing four broad sub-themes: Financial Savings (insurance, cards, gold, etc.); getting back to work (gas utilities, bearings, early cyclical goods, telecom, auto ancillaries); Consumer demand (food companies to aviation, etc.) and global business (IT, pharma, agro-chem, auto ancillaries, capital goods, etc.).

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Performance

Kotak Bluechip is among the good choices in the large-cap category. It has beaten the actively-managed large-cap fund category average return across 1-, 3-, 5- and 10-year periods ended May 31, 2021.

In terms of ranking, Kotak Bluechip consistently figures in the top and upper middle quartiles over short-, medium- and long-term time frames.

Also, on a 3-, 5- and 10-year daily rolling return basis since launch, the fund's mean return is 500-900 basis points higher compared to Nifty 50 TRI.

Kotak Bluechip’s ability to contain downside has been proven over the years. During the sharp market fall in March 2020, the fund lost less than its benchmark (Nifty 50 TRI) and peers.

Similarly, it protected downside better than Nifty in the volatile months, such as January 2011, October 2008, June 2008, and May 2006.

Portfolio

The fund’s focus is on investing in companies with low fixed costs in the current environment and thus most of its investee companies have limited debt and many are cash-rich.

While demand is hit across sectors and may remain so given the Covid second wave effect, these companies in general should survive this painful period of business better than their competitors, and thrive when demand recovers over time.

The fund’s portfolio is well-diversified with 53 stocks, with biggest weights in ICICI Bank, RIL, Infosys, HDFC Bank and TCS.

The fund follows the large-cap mandate (80 per cent in large-cap stocks) diligently.

A major difference between it and peers is in its mid-cap allocation — at 17 per cent versus 7.4 per cent category average.

The fund justifies the higher mid-cap exposure by delivering higher unit of return for risk undertaken (higher Sharpe ratio) than over two-thirds of category peers.

The fund's top 10 stocks form about 50 per cent of portfolio and top 10 sector holdings form 80 per cent of portfolio, as per ACE MF. Kotak Bluechip remains overweight on insurance, cement and capital goods while underweight on consumer and NBFCs versus the benchmark. Its top sector allocations are Financial Services, IT, Oil & Gas, Consumer Goods and Automobiles.

Recently, with expectations of of vaccine for Covid and normalisation of economic activities, the fund bought into a few consumer discretionary companies, booking profits from food staple companies.

Also, recently it increased some exposure to pharma and auto sectors as they had seen some under-performance over the last six months.