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Guarding Returns

Kotak Mid Cap has changed style to prepare itself for the market falls. Reduction in concentrated holdings served the fund well

Kotak Mid Cap can best be described as a fund that is still riding the learning curve. Till about eight months back the fund behaved like any other volatile mid cap fund - beating the category by large margins in a bull phase and severely underperforming in a bear phase. In part this can be attributed to the frequent change in fund management - four fund managers in two and a half years.

The current fund manager has brought about some welcome changes to the fund's portfolio. Firstly, he reduced the risk weightage of the portfolio, without letting the returns take a significant hit. He started maintaining a small exposure of about 8 per cent to large cap companies. He then brought down the concentration of holdings; the allocation to the top five holdings was significantly reduced. In fact during the March 2007 quarter (January - March) the fund lost only (-) 2.22 per cent as against the category's loss of (-) almost 6 per cent and the CNX Midcap Index's loss of (-) 6.73 per cent. What saved the day for the fund was an astute sector call. Taking cue from the tightening interest rates, the fund reduced its allocation to the construction sector. While many funds have burnt their fingers in this space, Kotak mid cap insulated itself in time. These timely moves ensured that the fund was better prepared for the correction that followed through the March 2007 quarter.

Better still, after this slow down there appeared no signs of sluggishness. In the following quarter (April - June 2007) the fund delivered 20.77 per cent as against the average diversified equity fund's gain of 16.88 per cent but less than the 23.21 per cent return of the CNX Midcap Index.

Overall the fund looks poised to capitalise on the rally in the mid cap space. Its performance over the six month period ending July 27 has placed it at 30 amongst 165 other diversified equity funds.