The fund stands out on many counts. Our conviction on the manager and his stock selection process leads to an overall rating of Silver (Direct Plan) and Bronze (Regular Plan).
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The fund is led by Pankaj Tibrewal, who has a long association of over 12 years with Kotak AMC. He has built a strong track record on the funds that he manages at the AMC. Tibrewal also gets the support of a strong and a stable research team who are well ingrained in the Kotak philosophy. The manger runs the fund with the basic premise of ensuring that the portfolio is well diversified and aims to reduce liquidity risks by investing in quality businesses that are unlevered.
The focus here is on investing in growth stocks that have sustainable competitive advantages. Tibrewal scouts for companies with a strong brand name, business, and market share and typically avoids stocks with corporate governance issues. He prefers to invest in businesses that are scalable, have the ability to generate steady cash flow and have good management capabilities. Although the portfolio remains tilted towards growth oriented mid-cap stocks, the fund also carries an exposure of about 10-15% each in in the large and small cap segment.
Tibrewal’s stock picking prowess leads to a portfolio that’s loosely aligned to the benchmark and is positioned to take advantage of growth in the domestic economy. Basic materials, consumer cyclicals, and industrials have historically constituted a major portion of the portfolio. Financials has remained an underweight, mainly owing to the fund's underexposure to NBFC's and PSU banks. The fund runs a significant overweighting in the basic materials and industrials sectors mainly owing to a positive view on the cement and home improvement sectors.
Some of the manager's significant off-benchmark stocks include positions like SKF India, Thermax, and Kajaria Ceramics. The manager's positive view in the cement sector is reflected by way in his holdings in stocks like Ramco and Shree. Manager Pankaj Tibrewal typically buys into stocks at a low exposure and builds positions based on the company's visibility of growth. This also leads to a slightly long tail on the portfolio. We also find that a few of his top holdings like Supreme Industries and Schaeffler India could take longer to liquidate as compared with some of his peers. We think liquidity is an important aspect that investors should be wary of while investing in a mid-cap portfolio.
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Overall, the fund has remained a consistent performer, with the fund falling in the top two quartiles. It did suffer slightly in 2020 owing to the underperformance within the financial sector. Stocks such as IndusInd Bank, RBL Bank, The Federal Bank and Axis Bank contributed to the fund’s underperformance during the year.
On a cumulative basis, the fund has remained a consistent performer. The fund manager has been able to manoeuvre the fund across market cycles. His stock picking prowess leads to a consistent performance which places the fund within the top two quartiles on a consistent basis.
The fund’s Up Capture and Down Capture ratios are slightly higher as compared to its peers. This is indicative of the fact that the manager is taking on a slightly higher level of risk to generate additional alpha.
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