Fish for unique opportunities for good returns Find out how to tap investment ideas across market segments by opting for opportunity funds. Investors are always on the lookout for good investment ideas, and the market occasionally throws up some that are either sector-specific, like FMCG, or theme-related, like consumption, exports or digitisation. These also come up due to structural changes in the economy, and you can tap them even if the broader market is in a rut. If spotted at the onset, you can make a lot of money, but this is easier said than done. To help zero in on such unique ideas and make the most of emerging trends on a sustained basis, mutual funds have come up with ‘opportunities funds’. How do these differ from equity funds? Why should one go for a dedicated opportunities fund when all equity funds are supposed to look for sound investment ideas? The answer—and the difference between the two types of funds—lies in scope. Traditional equity funds are limited in their mandate, investing mostly in a narrow set of stocks defined by market capitalisation or sector. So, some schemes invest within the large-cap universe or from a set of stocks belonging to, say, the banking sector. Their task is to identify the best opportunities here. Opportunities funds, on the other hand, are mostly broad-based. Most of the funds in this category are free to pick from across the market, though each scheme may have a tilt towards a particular basket, say, the largeand mid-cap segment. Says Harsha Upadhyaya, head, equities, Kotak AMC, and fund manager of Kotak Opportunities Fund: “These funds generally have more flexibility in portfolio construction within an overall broad framework. They are ‘no bias’ funds and can invest wherever opportunities arise. Kotak Opportunities, for instance, moves across market capitalisation and sectors without any bias, but within the broad framework of maintaining an exposure of not less than 60% in the large-cap segment.” Opportunities This category of funds is made up of starkly different flavours. The opportunity that each scheme alludes to is distinct from the others. If Mirae Asset India Opportunities Fund aims to dig out ideas from India’s economic growth and its structural shifts, L&T India Special Situations Fund mines for undervalued companies in situations that are out of the ordinary, and which, therefore, present interesting stock-picking opportunities. Says Gopal Agrawal, CIO, Mirae Asset Global Investments: “We have a mix of core and tactical approach, where a chunk of the portfolio focuses on stable businesses for the long term, and the rest is directed towards short-term opportunities due to policy changes, global events, etc.” Given the nature of these schemes, it is not surprising to see the underlying portfolio change colours at frequent intervals. Such is the level of flexibility that at one moment, the portfolio could be tilted in favour of banking stocks, but a few months later, you may see a shift towards the consumption sector. Since investment opportunities come and go, the fund manager has to move deftly to catch new ones as and when they arise. It is this investment approach that allows them access to—and benefit from—opportunities across market segments. Watch out for Before you blindly bet on opportunities funds, ask yourself whether it will add value to your portfolio. It’s also important to be aware of the risks involved. The modus operandi of such funds boils down to the fund manager’s stock-picking ability and nose for sniffing out good opportunities. While a well-managed fund can add significant value over the long run, a poorly managed one could erode your capital. The enhanced flexibility in the investment approach also presents a higher level of risk for the investor. This fluidity often leads to a higher portfolio churn as the fund manager attempts to deliver good returns. A higher turnover means more transaction costs, which eat into returns. Sustainability in performance is another thing to watch out for. There are funds that pick up a few ideas and do well over a particular period, but miss out on sound ideas later or make wrong bets, resulting in a downturn in performance. Performance The basket of opportunities funds has around 12 schemes, and as with their differing investment focus, the performance is also a mixed bag. The ones that stand out include Reliance Equity Opportunities, UTI Opportunities, Mirae Asset India Opportunities and L&T India Special Situations (erstwhile Fidelity, which have done well across time frames. “What has worked for us is the focus on stock selection, identifying businesses which generate strong cash flow and boast healthy return ratios,” says Agrawal. Kotak Opportunities and DSP BlackRock Opportunities have also delivered decent returns. However, some like Birla Sun-Life Special Situations, HSBC India Opportunities and DWS Investment Opportunities have struggled to deliver good performance. Final word Though these dedicated funds have the required expertise and research capabilities to mine ideas round the clock, you should be choosy while taking your pick. First, understand what the fund is trying to do in terms of its investment focus. This will be explained in its investment objective. Then check the consistency in performance, so that you know if the fund can identify and make good of opportunities continuously. Also check if the performance is sustained across market cycles. Lastly, make sure the fund is not taking too high a risk to capture emerging ideas and check the scheme’s risk profile through online research portals like Value Research.
Posted on: Mon, 08 Jul 2013 06:14:16 +0000
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