Generally, mid-cap equities offer good returns during a bull run but during a correction, these equities are the first to fall. But how have the mid cap funds faired in the recent volatile phase? Swapnil Suvarna takes a look and finds 72 per cent of mid-cap funds were outperformers against 34 per cent in the large cap fund category.
Mumbai: The period June 1, 2010 - July 1, 2011 saw a huge question mark over the attractiveness of India’s growth story following the wave of scams, Middle East crisis and raging inflation. However, in spite of massive volatility in the period June 1, 2010 - July 1, 2011, Sensex and Nifty remained on a positive note gaining 13 per cent each whereas the BSE Midcap and CNX Midcap index gained a modest 2 per cent and 5 per cent respectively.
We looked at the performance for the period beginning June 1, 2010 when RBI started hiking interest rates. Also, to ensure that we look only at funds with a minimum duration of track record, we have excluded funds that have been launched after January 2009. Let’s check the performance of 25 schemes which are benchmarked against BSE Midcap and CNX Midcap.
During the same period, out of the 25 schemes, 18 have outperformed their respective benchmarks. In other words, 72 per cent of the mid cap schemes outperformed their benchmark. In the contrast, only 18 funds out of 53 funds focusing on large cap space under Sensex and Nifty have outperformed their benchmark over the same period. This comparison shows that the percentage of outperformance among mid cap funds (72 per cent) is on the higher side relative to large cap funds (34 per cent). Also, the average return in the mid cap category was 10 per cent against the mid cap indices which has gained only 5 per cent.
Among the 18 outperforming mid cap funds, HDFC Mid-Cap Opportunities has been an excellent mid cap fund. It gained 22 per cent beating its benchmark CNX Midcap sizably, generating an alpha of 17 per cent. In both downside protection as well as market-timing, it has shown far greater skills than other mid-cap funds.
Two small schemes of Religare popped out among the list of outperformers. Religare Mid N Small Cap with AUM of Rs.13.64 crore emerged as the second top performer with a return of 19 per cent against its benchmark CNX Midcap. Religare Midcap with an AUM of Rs.52.18 crore was the third top performer with a return of 18 per cent. Both these fund have carefully chosen stocks some of which were out-of-favour.
Sundaram Select Midcap, the fourth best mid cap fund over the same period in terms of performance has generated an alpha of 14 per cent relative to its benchmark BSE Midcap. In April 2011, we have also done a fund analysis on this fund and it is among our recommendations to your investors (Read - Sundaram Select Midcap).
HSBC Midcap Equity emerged as a major loser, as its value eroded by 7 per cent relative to its benchmark BSE Midcap. This fund has got it wrong in terms of market timing and stock picking. The second worst among the lot is Principal Emerging Bluechip which has declined 1 per cent against its benchmark CNX Midcap. The fund’s exposure to bets in sectors like PSU banks, paints, electric equipment, tyres, power generation, real estate, shipping and IT seem to have back fired.