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Mirae Asset India Opportunities Fund: Presenting an opportunity
June 1, 2012

Mirae Asset India Opportunities Fund is one of the best performing funds in the Multicap category. In this article, we have studied the opportunities that the fund holds and found its future to be promising. This makes the fund an appealing candidate for all kind of investors.


Author : Raju Singh



 Mirae Asset India Opportunities Fund: Presenting An Opportunities

Key Points

  • Mirae Asset India Opportunities Fund (MAIOF) has one of the best ‘risk adjusted performance’ amongst its peers.
  • The fund follows core and tactical investment strategy.
  • The fund has leeway to invest across market capitalisation, sectors and themes but has bias towards large cap stocks.
  • The fund does not take aggressive cash calls and prefers to stay fully invested during all market cycles.
  • MAIOF has delivered whopping 10.71% annualised returns since inception compared to its benchmark; BSE 200 which has returned 1.35% for the same period as on 30 May 2012.

The equity markets seemed to be fairly valued at current levels of 16312 (BSE Sensex) and trailing P/E of 13.9x as on 30 May 2012 compared to 10 years historical average P/E of 16.5x. The BSE Sensex remained at almost the same level as 4 years back. That apart, many stocks across market capitalisation are trading at close to historical lows. In the current market scenario, Multicap funds seem more equipped to take advantage of the opportunities available across the market capitalisation. Exposure to large-cap stocks would generally provide stability to the fund during market volatility while exposure to mid and small-cap stocks work towards delivering additional returns in market rallies.

Multicap fund category comes as a subset of Diversified Funds. These funds invest across market capitalisation or sectors. In other words, these funds have a very flexible investment mandate. These funds will not have bias to any particular theme or style. They can invest wherever opportunities will be available.

There are around 95 funds in the Multicap category in India. These funds constitute around 41.6% of the total average AUM of diversified equity funds as on March 2012.

Fund Focus

Mirae Asset India Opportunities Fund (MAIOF) is a flagship product of the Mirae Asset Mutual Fund. This is a diversified equity fund that invests across market capitalisation, sectors, theme or style and aims to maximize the long term capital appreciation by finding investment opportunities resulting from Indian economic growth and its structural shifts. The fund was launched in April 2008. The asset under management of the fund has grown to Rs. 236.62 crore in April 2012 from Rs. 114.39 crore in April 2008. Since inception, the fund is being managed by Gopal Agrawal (Chief Investment Officer) and Neelesh Surana (Head – Equity).

Investment Strategy

The fund follows a core and tactical investment strategy while selecting the stocks. The core portion of the fund is focused to provide long term capital appreciation to the fund. As per April 2012 portfolio, the top 15 holdings of the fund that constitute around 50% of the portfolio are held since January 2011 except for Titan Industries. While current the top 10 holdings that constitute around 38% of the portfolio are held since July 2009 except for Bharti Airtel that fund has entered again in August 2010 after exiting in July 2009. In addition to this, the core holdings like ICICI Bank, Infosys, Reliance Industries, HDFC and Lupin are held almost since inception of the fund. This clearly states that the fund manager has bought these stocks with long term objective.

The fund manager prefers to maintain 85% - 90% of the portfolio as core holdings. The key filters used by the fund manager to pick the core portfolio are given below:

  • Major focus on the growth stocks which are available at reasonable price (Undervalued / Underpriced)
  • Companies which have sustainable competitive advantage over it peers or companies which are sectoral leaders
  • Companies which have high return on investment (ROI) and return on equity (ROE) (ROI depicts the strength of the business and ROE depicts about the strength of the management)
  • Focus on companies generating high free cash flow
  • Bias towards margin of safety based on in-house models
    • The in-house risk management team of Mirae AMC keeps track on all stocks across all portfolio and if a stock falls by a certain percentage, those instances are escalated to the investment committee for appropriate decisions.
  • Stay away from companies which are high on debt

The tactical exposure of the fund is around 10% - 15% of the portfolio. The fund manger uses this strategy mainly to create alpha. Given below are few charts to illustrate the tactical approach. The fund bought Alok Industries in May 2009 and exited it in June 2009 when the stock price almost doubled.

Chart 1: creating alpha using tactical exposure - case 1

That apart, the fund manager uses tactical calls on existing holdings as well to capitalize on short term opportunities. The exposure to ITC was around in the range of 1 – 1.34% since November 2009 to August 2010. The fund partially exited the stock in September 2010 and the exposure to ITC came down to 0.06% when the stock price had risen considerably. Accumulation was visible since January 2011 and the exposure went up to 2.16% in February 2011 when the stock was down by almost 15% from its September 2010 high price.

Chart 2: creating alpha using tactical exposure - case 2

The fund has well diversified portfolio and holds stocks in the range of 40 – 55. The exposure to individual stock has never gone above 6% since inception of the fund except for few instances of higher exposure due to short term tactical calls. As shown in Chart 3, the fund has a very static concentration on its top holdings. That apart, the average exposure to stocks has remained close to 2%.

Chart 3: Fund's top holdings exposure for last 1 year

MAIOF’s average exposure to large-cap stocks is 71% whereas the exposure to mid-cap and small-cap stocks is around 10% each since inception while the exposure to others (others includes exposure outside equity) is 7.74%. Although the fund can invest up to 35% of the portfolio in debt and money market securities, it has remained invested in equity. The average equity exposure for last 3 years is 94.6%. Even in 2008 when equity markets had a one way downward movement, the average exposure to equity was around 87% of the portfolio.

The average cash holding since inception is just 4.75%. The fund manager is of the view that the objective of the fund is to stay invested in equity and therefore, wouldn't be taking asset allocation calls.

The fund has a well diversified portfolio on the sectoral front as well and it has generally avoided taking aggressive sector calls. The top 5 sector holdings of the fund constitute around 39% of the portfolio and the average exposure to sectors is just 2.58%. The fund has similar exposure to sectors compared to its benchmark.

Chart 4: Fund's top 15 sector holdings compared to it's benchmark as on april 2012

The fund can be overweight or underweight on a sector depending upon the particular sector view but may not have major variations from its benchmark. As per April 2012 portfolio, the fund is overweight on sectors like ‘Auto Ancillary’, ‘Fertilizers’, ‘Tyres & Allied’ and ‘Pharmaceuticals & Drugs against’ the benchmark. But the variation in sector allocation is not major. The fund manager believes in creating outperformance more by stock specific allocation within the sector rather than having higher exposure to sector. Fund is slight underweight on ‘Refineries’ due to less exposure to Reliance Industries. Similarly, it has almost similar exposure of around 17% to ‘Banking’ but overweight on ICICI Bank, Federal Bank and underweight on HDFC Bank. So stock selections are the prominent lever used by the fund manager to create alpha in this fund.

table 1: top 10 holdings of the fund as on april 2012

 
Top 10 Companies Holdings
 
Top 10 Sector Holdings
Sr. No.
Companies Name
Holdings %
Sector Name
Holdings %
1
ICICI Bank Ltd.
5.59
Bank - Private 11.53
2
Infosys Ltd.
5.19
IT - Software  9.72
3
Reliance Industries Ltd.
4.06
Pharmaceuticals & Drugs 7.51
4
HDFC Bank Ltd.
3.90
Bank - Public 5.44
5
HDFC Ltd.
3.88
Refineries 4.77
6
State Bank Of India
3.58
Household & Personal Products 3.92
7
Bharti Airtel Ltd.
3.34
Finance - Housing 3.88
8
ITC Ltd.
3.10
Oil Exploration 3.46
9
ONGC Ltd.
2.73
Telecommunication - Service  Provider 3.34
10
Lupin Ltd.
2.64
Cigarettes/Tobacco 3.10
Source: ACE MF, iFAST Compilation

 

Performance

Mirae Asset India Opportunities Fund is one of the best performing funds in the basket of diversified equity funds. Even though the fund was launched during one of the most difficult times faced by equity markets and volatility has been characteristic to the markets even as we write, the outperformance shown during this period put this fund ahead of many of its older peers. As on 30 May 2012, the fund has outperformed its benchmark; BSE 200 and category average on 6 months, 1 yr, 2 yr and 3 yr periods. Even during market correction of 2008 from 4 April 2008 to 9 March 2009, the fund managed to outperform its benchmark by more than 4%.

Chart 5 shows the relative performance of the fund in comparison with BSE Sensex Index, BSE 200 Index and BSE 500 Index since its inception. The BSE Sensex, BSE 200 and BSE 500 indices since the fund inception have given 1.48%, 1.35% and 0.96% annualised returns respectively, while the fund has given whopping 10.71% returns. Therefore, if an investor has put Rs. 10,000 into the fund at its inception i.e., 4 April 2008, his investments would be worth INR. 15,261 as at 30 May 2012.

 

Chart 5: Relative performance of Mirae asset india opportunites fund with BSE sensex, bse 200 and bse 500 indices


In a nutshell

MAIOF carries a well diversified portfolio. The higher exposure to large-cap stocks protects the fund during market volatility and exposure to mid and small –cap companies gives flexibility to take part in market rallies as well. Moreover, the core and tactical portfolio strategies has really done well to the fund. These strategies seek long term wealth creation and also capitalize on short term opportunities.

The fund has diversified approach on sectoral front as well. We believe that the fund has potential to generate above average returns in comparison to its peers over a longer term. Investors having long term investment horizon and looking for a relatively less volatile fund compare to aggressive multi-cap Funds should consider this fund.

Details of Mirae asset india opportunities fund


Investment Objective

To generate long term capital appreciation by capitalizing on potential investment opportunities through predominantly investing in equities, equity related securities.

Inception Date

04-April-08

Benchmark Index

BSE 200

Fund Manager

Gopal Agrawal & Neelesh Surana

AUM (as on 30 April 2012)

Rs. 236.62 crore

Entry Load

Nil

Exit Load within 12 months

1%


To invest into this fund, click here

 

Disclaimer: iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website. Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the Scheme or that the Scheme’s objectives will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets. Past performance of the Sponsor/the AMC/the Mutual Fund does not indicate the future performance of the Scheme. The name of the Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns. Please read the Statement of Additional Information and Scheme Information Document carefully before investing.



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