- Equity fund that invests in a mix of large-cap and mid-cap stocks
- Orients portfolio towards large-caps
- Well-timed entry and profit booking strategies
- Deft moves in entering winners and weeding out underperformers
- Moderate to higher risk investors with an at least 5-year timeframe
Opportunistic is a good way to describe DSP BlackRock Opportunities (DSPBR Opportunities). This equity fund aims at identifying stocks with potential, booking profits in them quickly, and moving on to the next opportunity. Its performance puts it in the top quartile of diversified equity funds in the 3 and 5 year periods.
DSPBR Opportunities maintains a large-cap orientation towards its portfolio and includes mid-caps to the extent of 25-35%. This and its strategy gives it a slightly higher risk profile than large-cap funds and the more conservative diversified funds such as Franklin India Prima Plus or Kotak Select Focus. The fund is still suitable to be included in long-term portfolios of moderate risk investors too.
DSPBR Opportunities follows no specific growth or value-oriented strategy and simply looks for stocks with return potential. It also actively reduces or exits stocks that take time to deliver. Month-wise stock exits can sometimes be nearly as many as the number of stock entries. Sector exposures change quickly based on where the fund picks stocks. In automobiles, for instance, exposure was at 6.5% in January last year, dropped to 5% by mid-2017 and is back up to 8% currently. Current portfolio heavyweight is financials, but the fund has pruned exposure from the 38% it was mid-2017 to 34% now. It holds mainly private sector banks, insurance companies, and NBFCs. Wim Plast, Vedanta, Hindalco, Jyothy Labs, Tata Steel, Dalmia Bharat, Ashoka Buildcon, Somany Ceramics are some examples of the fund juggling exposure and pruning it on time over the past three years.
Portfolio turnover is thus high at 90-190%. High portfolio turnovers are usually associated with higher volatility, but DSPBR Opportunities has kept volatility below the category average by both exiting underperformers and booking profits in stocks that do run up. This limits the extent to which returns swing. The fund’s strategy doesn’t mean that it holds all stocks only for a matter of months. Given its large portfolio of 50-70 stocks, the fund holds some stocks for a short period to make quick returns and holds others for a longer period of 2 years or more to fully discover the price run. For example, it has held stocks such as HDFC Bank, ICICI Bank, Larsen & Toubro, HPCL, and Reliance Industries for over two years though in varying proportions. All stocks have delivered well for the fund.
Up until now, DSPBR Opportunities was a diversified or multi-cap fund with a large-cap orientation. The large-cap allocation was about 70-75% of the portfolio with the rest in mid-caps. In SEBI’s new categorisation rules, the fund will classify itself into the large-and-midcap category. This categorisation declaration has only just taken place. But the fund looks to have already begun adjusting its portfolio towards the definition of that category over the past three months. SEBI’s outline for this category is to have 35% minimum in both large-caps and mid-caps. Therefore, the fund has increased its mid-cap allocation to 35% of the portfolio and has reduced the large-cap exposure.
The fund’s own definition of large-cap and mid-cap to build its portfolio is more or less in tune with SEBI’s recent definition of what constitutes each market cap bucket. The new categorisation is not a major deviation from the fund’s current set-up. Its risk profile can step up slightly due to the higher mid-cap allocation necessitated but it remains a good bet for moderate to high-risk long-term investors.
DSPBR Opportunities, which has an 18-year history, had faltered in earlier years such as 2010 and 2012. Its performance has picked up especially well in the past 3 years. On a rolling 1 year returns basis over 3 years, the fund has beaten the Nifty 500 index about 96% of the time. Against the Nifty 500 TRI, consistency drops slightly to 92% but this is still a good number.
Due to the recent addition of mid-caps and the ongoing correction in this space, the fund’s returns in relation to the Nifty 500 index has slipped in the past two months, pulling down its 1-year returns. The fund otherwise remains a consistent performer.
Against the category, the outperformance is 96% of the time. Over a longer period, the fund’s performance is not that high, being able to beat the category average only 68% of the time when rolling 3-year returns over 5 years. The fund has however been improving on consistency against category; just last March, this consistency metric was much lower at 55%. In terms of generation of excess returns over the Nifty 500, captured by the information ratio, DSPBR Opportunities is among the best among diversified funds. Its risk-adjusted return, measured by the Sharpe ratio, is above average indicating that risk taken has paid off in returns.
The fund is also able to limit losses in comparison to the benchmark, though peers such as Franklin India Prima Plus, ICICI Prudential Value Discovery, and Kotak Select Focus manage better performance during market corrections. Rohit Singhania is DSPBR Opportunities’ manager since 2015.
Note that with funds reclassifying themselves to comply with SEBI categorisation norms, some mid-cap funds are moving to the large & mid-cap category. To this extent, DSPBR Opportunities may look like it is lagging peers in the new category; the mid-cap funds would have the high return history associated with mid-cap stocks while DSPBR Opportunities historically has a large-cap orientation.
FundsIndia’s Research team has, to the best of its ability, taken into account various factors – both quantitative measures and qualitative assessments, in an unbiased manner, while choosing the fund(s) mentioned above. However, they carry unknown risks and uncertainties linked to broad markets, as well as analysts’ expectations about future events. They should not, therefore, be the sole basis for investment decisions. To know how to read our weekly fund reviews, please click here.