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Fund Analysis : Reliance Equity Opportunities : Bull Market Performer
Wed, Jul 31, 2013
Source : Shoaib Zaman, Citrus Interactive

Reliance Equity Opportunities is an equity diversified fund with monthly average assets under management at Rs 5,006 crore, as on June, 2013. The fund’s portfolio has a tilt towards large- and mid-cap companies. The fund was launched on March 2005 and it has been benchmarked against the S&P BSE 100.

Performance

The fund’s performance has been a laggard in Year-to-date (June 30, 2013) as it fell to fourth quartile within the category; this period has witnessed under performance among the funds which were heavy loaded with mid-cap stocks.

Scheme Name

YTD

1 Year

3 Years

5 Years

Since Inception

Reliance Equity Opportunities Fund(G)

-9.60

7.61

6.77

16.58

18.31

S&P BSE 100

-2.90

9.94

1.95

7.32

13.62

Average

-7.25

7.40

1.56

8.59

 

Rank of the fund

107/145

78/144

8/133

1/115

 

Figures in % as on June 30, 2013; Returns above 1-year in CAGR (Compounded Annual Growth Rate) terms; YTD* – Year to date (it represents returns between January 1, 2013 to June 30, 2013)

During calendar years 2008 the fund was in the third quartile among its peer-set of equity diversified funds. Other than that it has managed to maintain its position in the top two-quartiles in most of the years. Especially in a bull market the fund has given outstanding returns.

Scheme Name

2008

2009

2010

2011

2012

Reliance Equity Opportunities Fund(G)

-55.98

103.78

30.45

-21.63

47.35

S&P BSE 100

-55.49

80.3

15.66

-25.73

29.96

Category Average

-55.76

83.41

19.35

-24.09

33.81

RANK

63 / 113

17 / 126

6 / 135

41 / 143

14 / 148

Absolute returns

 

 

 

 

 

Absolute Returns; Figures in %

Risk. In terms of measures of risk such as standard deviation and beta (measured over last three years), the fund has so far taken slightly lower level of risk compared to the category median.

Scheme Name

Standard Deviation

Beta

Reliance Equity Opportunities Fund(G)

0.940

0.788

Category Median

0.941

0.811

Average over the last three years

 

 

 

Risk-adjusted Returns. In terms of measures of risk-adjusted return such as Treynor ratio and Sharpe ratio (measured over last three years), the fund has given a higher risk-adjusted returns compared to the category median.

Scheme Name

Treynor

Sharpe

Reliance Equity Opportunities Fund(G)

0.033

0.030

Category Median

0.003

0.007

Average over the last three years

 

 

 

Processes

Reliance Equity Opportunities Fund is multi-cap equity diversified fund. The fund’s investment strategy allows it to invest in stocks across market capitalization. According to the SID, "The primary approach to stock selection will be through the top-down approach viz: Sector -> Industry -> Company. The fund would not only restrict itself to the 'Top down Approach' but on a case to case basis will also adopt the 'Bottoms up approach' viz: Company -> Industry -> Sector." Therefore, based on perception of the Fund Manager, the fund will decide on the investment strategy.

The fund manager has been given freedom In terms of the choice of instruments as well has full discretion to invest even in foreign securities or debt instruments. It can also take exposure to derivatives. Therefore, there are a lot of liberties that can be used by a capable fund manager to create a long term track record

This fund has a lower expense ratio at 1.75 per cent; this is 77 basis points less than the median expense ratio for the category of equity diversified that stands at 2.52 per cent. This may be possible due to the large size of the fund.

The fund’s exit load policy is similar to the most of the peer funds i.e. 1 per cent exit load if the investor redeems or switches out within 1 year from the date of allotment. Any redemption or switches after one year has does not levy an exit load.

Portfolio

As of May 2013, the fund has a little over 60 stocks in its portfolio against the category median of 43. Its average portfolio allocation since 2012 has been 48 stocks. Prior to March 2012 (over a three period), the fund had maintained equity count at an average of 34 stocks. It has increased the number of stocks with a higher AUM.

In the last five years (between June 2008- May 2013), the fund has had an average exposure of 53 per cent to large-cap companies. During this period average exposure to mid-cap companies was at 33 per cent and approximately 2 per cent to small caps. Its exposure to the other equity – consisting of derivatives, preference shares, warrants etc. – stood at approximately seven per cent. Its average exposure to cash and cash equivalents during this period has been seven per cent.

As on May 2013, exposure to large-cap was at 64 per cent, mid-cap level was at 33 per cent, small cap is 0.56 per cent and exposure to others (including cash and CBLO) was at 1.52 cent. It has no exposure to other equity.

The top five sectors in the portfolio as of June 30, 2013 had an allocation of 57.25 per cent. These include Banks, Pharmaceuticals, Software, Industrial, Media and Entertainment; within banks PSU Banks appear to have a higher proportion. In the last 12 months (July 2012-June 2013) a total of 32 stocks have appeared in all months, and together they have accounted between 74-to-86 per cent of the portfolio. Divis Laboratories has accounted for the highest concentration in most of the months, except December 2012 and January 2013, when SBI and Infosys had the highest allocation respectively.

Cyclical stocks had exposure levels of 55-to-63 per cent over the last 12 months. This was followed by Services where the exposure moved between 17-to-24 per cent and 13-to-17 per cent was in defensive stocks.

A high exposure to midcaps and to cyclical in general may have resulted in the underperformance of this fund. For a fund scheme with AUM of Rs 5,000 crore, an exposure of 35 per cent to midcap and small caps with a limited number of stocks will pay off if the picks have a good number of multi-baggers. This is not so visible in the portfolio as of now. We will therefore need to wait and watch, unless the fund manager chooses to churn the portfolio for more promising picks.

Fund Manager

The fund has been managed by Shailesh Raj Bhan who has been in charge since its inception in March 2005. Bhan has been with Reliance AMC since 2003. Prior to his current assignment, he worked for firms like Emkay, Shah & Sequeira and ICFAI. He is assisted by Viral Berawala who began working on this fund from September 2010.

In addition to Reliance Equity Opportunities, Shailesh Raj Bhan also looks after Reliance ELSS-I and two sector funds (one focused on media and entertainment and the other on pharmaceuticals).

View

The fund doesn’t have a fixed strategy and is highly dependent on the fund managers’ ability. Bhan’s has outperformed in various years. Although looking at the fund’s performance it seems the fund is a good choice during bull markets like the ones we saw in 2009, 2010 and 2012, where it outperformed the benchmark and was also among the 20 funds among its peer.

Considering the high volatility in the market and recent underperformance could result in an average or sub-optimal performance in the near term or till the time that the market does not get into an sustained upswing. Since Bhan is at the helm it is likely that it will outperform once the market starts ascending. Anyone looking for a growth fund which can capture performance in a rising market and has a moderate to higher risk appetite could consider investing in this fund.
 
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