Sundaram Select Midcap

Lahar Bhasin recommends Sundaram Select Midcap for its ability to perform consistently across market conditions but advises you to caution your investors about the risk associated with the category

The fund is among the largest funds in this space and has received good investor interest. The fund has delivered impressive returns in the past and even when its rankings have slipped, the returns have remained above average. The fund’s return trail for the long term of five years places it amongst the best mid-cap funds on offer. Over the shorter term as well, the performance has been in the top quartile. During the bearish phase of 2008, the fund managed to contain losses better than its benchmark - it regressed 59 per cent compared to the 67 per cent lost by its benchmark. Moreover, while the fund was amongst the least to loose in the mid cap space, it was amongst the quickest to bounce back – the fund doubled its investor’s money in a span of five months from March 2009 onwards!

Mid-cap Exposure

While the portfolio is predominantly mid-cap oriented, the management has maintained a tilt towards the larger mid-caps, rather than risking exposure to less liquid mid cap companies. This has been especially true for the portfolio after the 2008 slump. Since the slump in 2008, the exposure to companies with a market cap greater than Rs. 5000 crore rose to 40-58 per cent of assets. This is higher than the 25-35 per cent invested in such companies before 2008. Consequently, the relative volatility in the fund’s returns has reduced. This change in stance shouldn’t deter the aggressive investor, as given the uncertainty of the global economy a larger proportion of more liquid stocks is an ideal situation; moreover such a strategy obviates the need to maintain a large cash allocation.

Another positive aspect of the fund management strategy is to allocate about 20 per cent to the top five holdings; this again goes a long way in ensuring less volatile returns.

Winds of Change

A big blow to the fund was in 2007 when its fund manager, Mr. Anoop Bhaskar moved to UTI Mutual Fund. While there are clear differences in management of the fund between Mr. Bhaskar and the current fund manager, Mr. Ramanathan, the consistency in the returns have not been adversely affected.

Currently the fund is amongst the few to be underweight on banking scrips and shifted its focus towards the non-banking finance sector. At the same time, while energy is an important part of the portfolio, the fund has maintained a diversified basket of stocks. Since September 2010, the fund management appears to have taken a cautious stand, which has enabled it to contain losses during the correction.

The fund’s portfolio turnover is on the higher side. However, the portfolio gyrations display agility in responding to market conditions. Whether it was a quick exit from technology companies in 2007, a quick deployment of funds in 2009 or the current cautious approach, the fund management has been quick to mirror the market condition in its portfolio.

The higher risk-high return proposition plays out very clearly for mid-cap funds; therefore, advisors should communicate the risk facing an investor’s portfolio before monies are committed here.