|
Fund |
Motilal Oswal
multicap 35 Fund |
|
Category |
Flexi cap |
|
AUM (Rs Cr) |
12,000 (As on 31/12/2020) |
|
Fund Manager |
Mr Akash
Singhania |
|
Benchmark |
Nifty 500 TRI |
How is
Motilal Oswal multicap 35 fund?
Motilal Oswal multicap 35 fund is a flexi cap fund that can
invest in a maximum of 35 stocks.
It needs to be invested 65% into equities and equity related
instruments at all times.
It can invest up to 10% of its portfolio into foreign
securities.
The fund was previously a multicap fund but since January
2021 has been recategorized to the flexi cap category.
It is the only focused fund presently that invests in more
than 30 stocks since most focused funds usually invest in 30 stocks or fewer,
as can be seen below:
- Axis Focused 25 fund
- Principal Focused fund (30 stocks)
- SBI Focused Equity (30 stocks)
What
is a flexi cap fund?
A flexi cap fund is one which needs to stay invested into
equity for a minimum of 65% at all times.
The remaining 35% can be invested in debt, cash, domestic or
international equity.
There is no restriction with regards to cap.
A flexi cap mutual fund is the most flexible mutual fund
scheme since it does not have too many restrictions.
At the same time the role of a fund manager is of prime
importance in a flexi cap fund due to the freedom she gets to run the portfolio.
Any mutual fund scheme that wants to qualify as an equity
fund for tax purposes needs to invest a minimum of 65% into equities at all
times except for elss mutual funds which needs to invest a minimum of 80% into
equities at all times.
Difference
between Focused funds and Flexi cap funds
Some view focused funds as flexi cap funds whereas others do
not.
In reality though, in terms of functioning both types of
mutual funds are same except for one key difference.
A focused mutual fund can invest only up to a certain number
of stocks unlike a flexi cap mutual fund which has no such restriction.
Some focused funds invest up to 30 stocks, some 25 and some
even fewer but they cannot exceed the pre mentioned number of stocks.
There is no restriction with regards to the caps though, the
only restriction is with regards to the number of companies a portfolio can
hold.
A flexi cap fund can function as a focused fund but a
focused fund cannot function like a flexi cap fund.
Investment strategy of Motilal Oswal Multicap 35
Since this is a focused fund, the bets are concentrated and so are the risks.
Most focused funds tend to be large cap biased with a growth
based investing strategy.
Motilal Oswal multicap 35 fund is more value driven even
though it swings between large caps and mid caps frequently.
It has a more momentum driven strategy applied to its
portfolio.
Motilal Oswal multicap 35 fund portfolio
The fund is overweight on financials as compared to the category.
Within financials too all its bets are on private companies
with no exposure to any PSU bank.
It is underweight on chemicals, energy and healthcare
sectors by a big margin.
This should not come as a surprise considering the past
investing trends of this fund.
The fund is more of a value and momentum driven focused fund
which is a unique strategy in the focused fund space.
As on 31st December 2020, the top 10 stocks in
the fund made up 56% of the total portfolio.
This means more than half of the overall portfolio is
invested only in ten stocks.
This makes for concentrated risks.
The fund therefore has a tendency to be extremely volatile
with periods of severe underperformance.
This is to be expected since the fund takes concentrated risks
and bets even in mid and small cap stocks.
For example as on 31st December 2020, it held
5.9% in Vaibhav Global Limited and 4.8% in AU Small Finance Bank Limited.
Should
you invest in Motilal Oswal multicap 35 fund?
Even though the fund has been projected as a Buy Right and
Sit Tight fund, in fact so are all the schemes of the fund house but in reality
though the fund is more momentum driven.
This can be easily ascertained by its high turnover ratio
which is very surprising given its focus on Buy Right and Sit Tight philosophy
so to speak.
Its severe underperformance during certain periods makes you
question whether the risk associated with such an investing style is worth it.
Even if it does make gains in the future, it still has a lot
of ground to catch up to make parity, let alone making a profit.
As an investor you need to ask yourself, when there are
other flexi cap/focused funds with a much more simpler and effective approach
is Motilal Oswal multicap 35 fund worth the hype?
Explaining
the recent underperformance in Motilal Oswal Multicap 35
The underperformance of the fund has coincided with the exit
of Gautam Sinha Roy as its fund manager in May 2019.
Because of its focused approach along with a higher exposure
to the top 10 holdings makes for concentrated risks and bets.
Its top 10 holdings often include even mid and small cap
stocks unlike other flexi cap and focused funds.
In the recent past it has often gone wrong with its
concentrated bets like Vakrangee and Manpasand Beverages.
Every mutual fund scheme will have sectors and stocks it has
high bets but with a focused fund these bets become more risk prone than
rewarding.
This is because a focused fund can invest only in a limited
number of stocks and therefore the allocation to these bets is also on the
higher side and if things go wrong then the effect of the same is also very
difficult to overcome.
As an investor you therefore need to ascertain whether the
risk is worth it.
Most investors often tend to invest in a particular fund
when its recent performance is on the up and redeem when the performance goes
down.
This can be easily inferred by the fall in its AUM in the
last quarter of 2020 when the market was at peak but the fund was underperforming
and therefore investors shifted to other funds.
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