Mid Cap Funds stood out in 2012: Morningstar

60% of diversified equity funds underperformed BSE 100 index over a one year period but over three and five year timeframe these funds did much better.

Equity funds

In 2012, small and mid-cap funds were winners significantly outperforming large cap funds. Large cap funds posted average returns of  28% compared to average returns of 39% delivered by small & mid-cap funds. Better results posted by private banks and NBFCs and expectations of a rate cut(s) by RBI helped the banking sector rebound in 2012 with the BSE Bankex index delivering a return of 57%. In 2011, the Bankex index had dipped almost 32%. The rebound helped financial sector funds deliver an average of 59% returns in 2012, outperforming the BSE Bankex index by 2%, shows a Morningstar report. This led fund managers to increase exposure to banking and financial stocks in their diversified equity funds by an average of 20% in 2011 and almost 26% in November 2012.

Diversified funds

Even with equity markets recovering in 2012, 60% of large-cap funds underperformed the BSE 100 index over a one year period.  These funds posted an average of 28% in 2012 against gains of 30% in the BSE 100. However, over a three and five year period, the percentage of underperformance (based on the percentage of assets managed by large cap funds) was much lower at 17% and 15% respectively. The trend was similar among small and mid-cap funds and ELSS funds too. 42% of small/mid-cap funds category, which have a smaller share of the equity category, underperformed the CNX Midcap index during the year whereas over longer periods it was a smaller proportion that underperformed.  “In the last 3 years, 22% of the funds in the small/mid-cap category have underperformed the benchmark CNX Midcap index. However, these funds only account for 7.5% of the category assets—meaning that they have mostly been the smaller funds,” stated Dhruva Raj Chatterjee, Senior Research Analyst, Morningstar India in the report.

FMCG Funds

FMCG, considered being a defensive sector, continued to do well in 2012.  FMCG funds delivered average returns of 48%. These funds were the top performers in the market downturn of 2011 as well, and was the only fund category (from the equity side), to post positive returns in that year, the report states.

Gold ETFs

Gold ETFs’ performance moderated to 11% in 2012, compared to returns of 31% in 2011 which helped make gold a top performing asset class over a five year period, posting 22% returns.  The moderation of returns resulted in net inflows in gold funds coming down to Rs 1352 crore in 2012 till November  compared to a net inflow of Rs 4046 crore in 2011. Gold ETFs asset growth too was down at 30% in 2012 (up to November), compared to a 160% growth in 2011.