Kotak Bluechip Payout of Income Distribution cum Cap Wdrl INF174K01179

Though the broader portfolio construction framework is well-structured and efficient, what has helped the fund is the stability of the philosophy, style, and consistent execution of this approach across time. This has resulted in the continuity of the nature of the fund despite a change in manager.

The framework looks at the Nifty (1-50), Nifty Juniors (51-100), and larger mid-caps as separate segments. From the Nifty 50 universe, the focus is on what not to own rather than what to own. This portion of the portfolio will broadly have a 60%-70% overlap with the benchmark and is the stable/core part of the portfolio. In the Nifty Juniors segment, the focus is to have 10-15 high-conviction bets that can eventually move to the Nifty 50 universe in the next one to two years. This portion of the portfolio will have very low churn and enough time will be given to the names from this segment to deliver on their expected potential. The larger mid-caps will have a basket of 10-15 names that have potential growth drivers ahead. Here the endeavor is not to invest for the long haul; instead, these positions will be sold off once the target price is achieved. This is also a tactical portion of the portfolio; therefore, investments will be done in names only if there is a catalyst that can deliver growth.

Manager Rohit Tandon adopts a benchmark-aware portfolio approach where there is a healthy overlap between the fund and the Nifty 50. This is to prevent the fund from going overboard on risk. He uses a combined top-down and bottom-up approach. The top-down view is used more for sector weightings, whereas bottom-up analysis is applied at a stock level.

The process plied in this fund is simple and has been executed consistently, supporting a rating of Above Average.

Manager Rohit Tandon likes to approach fund construction from a bottom-up perspective from an opportunity set of around 100 stocks. He checks to validate his picks in conjunction with macroeconomic data. The idea is not to superimpose pure bottom-up picks in the portfolio but to get them validated through economic data. This also helps him in taking overweight/underweight calls in stocks. Sector overweight/underweight calls are taken at a fund-house level.

For each of the segments (Nifty, Nifty Juniors, and larger mid-caps), there are sectors mapped from which the portfolio is constructed. Cumulatively, the fund will have a basket of around 50-55 well-diversified companies. The allocation range of these three segments will be around 80%/10%/10%. The portfolio will have around 60% overlap with the benchmark and typically follows a buy-and-hold approach.

The team at Kotak tries to control risks with a two-pronged approach of sector deviation limits and portfolio constraints. First, sector weightings can deviate by a maximum of plus or minus 3% for small sectors (<12%), and plus or minus 6% for larger sectors (>12%) from the benchmark index. Second, portfolio constraints are part of the risk management across portfolios (conservativeness is followed across the AMC): Stocks are divided into four tiers based on the type of business, management quality, liquidity, and market cap. Maximum weightings are defined for each tier and for each position within that tier.