- Fund: Reliance Equity Opportunities
- Category: Flexi Cap
- Star Rating: 3 stars
- Analyst Rating: Silver
- Risk: Given the fund’s fluid investment strategy with big sector and thematic play, it courts more risk than the norm.
- Investment Style: Large Growth. The fund manager’s investment strategy is flexible in nature and encompasses multiple aspects.
- Fund Manager: Sailesh Raj Bhan
- Analyst: Himanshu Srivastava
- Date of Analysis: August 2017
Sector or Theme Bets
He is benchmark-agnostic across sectors and stocks when constructing the portfolio and takes sizable sector bets where his conviction is high.
In fact, it is safe to say that taking big sector/thematic bets forms an integral part of the strategy. Bhan typically uses a macro overlay to choose sectors. For instance, he continues to position the portfolio to benefit from economic growth recovery. Given his view that the macro conditions are favourable for the general earnings growth to pick up, he has been maintaining significant exposure in domestic themes such as consumption (both urban and rural), corporate banks and hospitality among others.
His focus on emerging themes such as retail, media, insurance, digital TV, and outsourced services remains integral to portfolio construction. These account for roughly 20% of the portfolio and he believes they have substantial upside potential over the long term.
Bhan is valuation-conscious and since 2011 has either steered clear of or maintained an underweight position in the consumer defensive sector due to valuation concerns.
The cash exposure is capped at 5%.
Stock Selection
He plies a growth at a reasonable price approach to selecting stocks. He is conscious of valuations but does not mind paying more for a company if he believes it has sustainable advantages over its peers and good growth prospects.
He prefers companies that are leaders in their respective sectors and have healthy or rising ROEs over a 3- to 5-year period. Bhan also pays heed to qualitative issues when evaluating a company and uses fundamental research to scout for them.
He invests up to 10% of assets in value stocks to reduce price risk in the portfolio, given its large growth bias.
He invests in stocks from across market segments, with 40%-60% of assets in large caps. He is patient with his investments in mid/small-cap stocks, emerging/niche themes, and value picks given his belief that such companies have long gestation periods and may not bear fruit immediately. Conversely, large caps can generate market- linked returns, ensuring stability and adequate liquidity in the portfolio.
Most of the stocks in the portfolio holds leadership positions in their respective sectors.
Performance
Last year the fund hit a rough spot (one of the worst in its history). This is largely because Bhan has been positioning the portfolio for an economic turnaround for a long time now. The delay in the same, coupled with demonetisation last year, resulted in his picks from consumption and corporate bank space performing below expectation and hurting the fund’s overall performance.
The fund’s recent brush with underperformance affected its 3- and 5-year performance which is below the category average. This year, the fund made a comeback outperforming the category average and benchmark index.
Under Bhan (April 2005 to July 2017) the fund has had an impressive showing, outscoring its benchmark index (S&P BSE 100) and 75% of its peers from the India flexicap category. It’s 10-year returns are an impressive 14.35% annualized.
You can read the brief analyst note here
