L&T Opportunities Fund: Hold

Investors can retain the units of L&T Opportunities Fund, given its long-term track record in delivering steady returns. The fund has managed to outpace the returns delivered by its benchmark over one-, three- and five-year timeframes.
However, it has not been able to contain downsides better than its benchmark during market corrections. Returns delivered by it are middle-of-the-road compared with peers in this category. Over a five-year period, L&T Opportunities has delivered a compounded annual return of 20 per cent.

While this compares favourably with funds such as UTI Opportunities and Tata Equity Opportunities, others such as Reliance Equity Opportunities, DSPBR Opportunities and Kotak Opportunities have managed better returns. By taking significant midcap stocks exposure of around 35-45 per cent of overall portfolio, the fund has gained from rallies in this segment , while increasing its risk profile.

While smaller asset size may help higher manoeuvrability, it also means a low base to absorb transaction costs of churning. This may have deterred the fund from making adept switches when good options were available. L&T Opportunities may be suitable for investors with a medium risk appetite. Investors with a lower risk appetite may take the SIP (systematic investment plan) route for optimising costs and managing volatility.

Performance and strategy: L&T Opportunities manages to surpass the returns delivered by its benchmark during periods of market upswing. During 2006, 2007 and in the prolonged rally that started in March 2009, the fund has outpaced the Nifty comfortably, the level of outperformance being 15-60 percentage points.
But during market falls, such as those experienced in May-June 2006, early 2007, the fund has failed to contain downsides by only a marginal percentage point or two. But in the protracted correction of 2008-09, it lagged the Nifty by as much as 10 percentage points.

The fund has more than 60 stocks in its portfolio, with very limited concentration of individual stocks .
L&T Opportunities has had heavy exposure to capital goods and construction segments across market cycles apart from banks. This helped the fund participate well in the rallies prior to 2008. Stocks in these sectors took a hard knock during subsequent market correction. Cash positions were around 10 per cent of the portfolio even during heavy market volatility of October 2008- march 2009.
In recent months, exposure to seemingly defensive sectors such as software and pharma has increased. - K.Venkatasubramanian