Mutual funds are supposed to be well defined, wherein lies their appeal. This is true for all but one category of funds -- opportunity funds. They roam all over the investment map. If an opportunity fund is true to its calling, it will move all around, scouting for the right opportunities, be it in market-cap, sector-wise or theme-wise holdings.
Take an example of DBS Chola Opportunities Fund that now sports a very broad portfolio, or there is Sundaram Select Focus that has a very compact portfolio of only 28 stocks.
Some funds in this category are extremely nimble in getting in and out of stocks but others are not as aggressive in scouting for opportunities. Also, while some funds may have a high turnover of stocks or sectors, others adhere more to a buy-n-hold strategy.
This free-ranging fraternity of opportunity or go-anywhere funds has quite a selection on offer. Here we pick out three of the best ones in the business.
DBS Chola Opportunities -- extreme performances
Originally the Chola Freedom Technology Fund, it turned into an opportunities fund in December 2003. Over the next two years, its performance was far from impressive. But in 2006, it began to change for the better.
It was smart sector bets that worked in its favour in 2007. Exposure to the energy, metals and engineering sectors moved up towards the end of the year and in the last quarter of 2007, the fund delivered an astounding 43.74 per cent (category average, 28.39 per cent).
But it faltered miserably in 2008. Its exposure to financials and construction backfired. The BSE Bankex was down by 52.23 per cent and BSE Realty fell by 82.13 per cent. It also tended to tilt more towards mid- and small-cap stocks and only towards the end of the year began to up its large-cap exposure.
But this variable performance is exactly the fund's character. In its best year (ended December 12, 2007) it delivered 93.82 per cent! In its worst (ended January 13, 2009), it fell by 63.17 per cent. More recently, its best month (ended April 9, 2009) impressed with a return of 37.47 per cent.
But its volatility in returns does not imply that its portfolio is inherently very risky. It's a fairly diversified offering, with a very small asset base.
DSP Blackrock Opportunities -- a safe house
This one is probably as safe as you can get with an opportunities fund. Consistent returns, a diversified portfolio, with a tilt towards large-caps, will make investors feel safe here. But in providing this level of comfort, it has moved away from being a true opportunities fund.
In its early years, it stayed loyal to its mandate. It was not just its movement in and out of sectors, it also boldly rode its bets, be it stock-specific or sector. But the fund has mellowed over the years to now resemble a more diversified offering. The number of stocks averaged 80 in 2008 and this year has hovered around 70.
The returns, too, reflect the tamed nature. In 2003, the fund delivered a return of 138 per cent. No longer will you see such spectacular returns, but neither will you have to deal with volatile ups and downs.
This fund has delivered an annualised return of 16.56 per cent over the past five years (as on April 30, 2009) with the second lowest standard deviation (30.47) in its category.
In fact, this is around two per cent lower than the average standard deviation of equity diversified funds. Low volatility, consistent returns and lack of aggression are the marks of this oldest player in the opportunities fund category.
Kotak Opportunities -- the fast runner
Despite a portfolio of around 50 stocks, a large-cap tilt and exposure to derivatives, debt and cash, it's not a fund for the cautious. True to its calling, it scouts for opportunities and doesn't hesitate in taking concentrated sector and stock bets.
In the bull phase (June 15, 2006 to January 8, 2008), it delivered 91.26 per cent against the 81.29 per cent average of other opportunity funds. Unsurprisingly, it shed higher in the bear hug of 2008.
Its charm lies in its capability of identifying sector trends well ahead of time.
There are times when it has been on a roll, as well as occasions where it has failed to deliver average returns. But this behaviour comes with the turf and those with an aggressive bent will feel at home here.