Opportunities Funds — Mixed performance

The track record of ‘opportunities’ funds may not be that enviable, given that they have not beaten their benchmarks consistently. On a one-year basis, of the 14 funds in this category, only five (or about 40 per cent) beat the returns generated by the S&P CNX 500 (82.4 per cent returns). If the BSE-100 (79.6 per cent) is taken as a reference, half of them pass muster. The story is the same for a three-year time-frame too.

Opportunities funds seek to invest in stocks across market capitalisation and usually have a substantial mid-cap stock (less than Rs 7,500 crore market capitalisation) exposure. On a one- or three-year basis, a strong mid-cap exposure and selection of sectors such as capital goods, auto and banks, in the portfolio has determined the levels of out-performance.

Sectors that led the rally


For example, Mirae Asset India Opportunities Fund clocked a return of 111 per cent over a one-year period. The fund, over the last year, increased exposures to mid-cap stocks, as a percentage of its overall portfolio, from 26 per cent to over 40 per cent. It also invested in the ‘right’ sectors — banks, capital goods and auto ancillaries — that led the recent market rally that started in March.

In the previous market rally in 2007-08, led by mid-cap stocks, again, half the funds out performed the BSE-100 and the S&P CNX 500, with funds such as DBS Chola Opportunities, Kotak Opportunities and Tata Equity Opportunities delivering triple-digit returns.

Containing losses better


However, in the market downturn of 2008-09, two in three funds in this category contained losses better than these indices. The best performer on this count was UTI-Opportunities, which lost 54.7 per cent of its NAV in this period, compared to the 60-63 per cent by which other major indices fell.

Most ‘Opportunities’ have been in existence for less than five years. On a one- and three-year basis, the funds that delivered steady returns are UTI Opportunities, Reliance Equity Opportunities, DSPBR Opportunities and Kotak Opportunities. Of these Reliance Equity and Kotak had mid-cap exposures of over 40 per cent across market cycles.

UTI Opportunities and DSPBR Opportunities have a large-cap stock tilt and have less than 20 per cent invested in mid-cap stocks. These two funds also tend to be cautious during market corrections. In January less than 75 per cent of the funds’ portfolios was invested in equity to tide over market volatility