HDFC Mid-Cap Opportunities Fund – A consistent performer across all market cycles
We at investment-mantra.in recently published write-up on one of the consistent performing funds in ‘Equity Linked Savings Scheme (ELSS)’ category – Axis Long Term Equity Fund (G). Our endeavor is to familiarize investors with the funds which can be core holdings in one’s mutual fund portfolio. HDFC Mid-Cap Opportunities Fund is one such Mr.Dependable fund in this category which investors can consider to invest in as part of mid-cap fund allocation in their mutual fund portfolio. The fund has already impressed with its risk management potential during severe market downturns and of course, the consistent good returns the fund has managed to generate over the long term.
Investment Type: Open-ended equity scheme w.e.f. June 25, 2010
HDFC Mid-Cap Opportunities Fund, launched as a 3 year close ended equity scheme has been converted into an open ended equity scheme with effect from June 25, 2010.
Fund Category: Mid and small cap category
Inception Date: June 25, 2007
Asset Size: 12,753.08 (Mar-31-2017)
Benchmark Index: Nifty Midcap 100 Index
HDFC Mid-cap opportunities Fund aims to generate long-term capital appreciation from a portfolio that is substantially constituted of equity and equity related securities of Small and Mid-Cap companies.
To reduce risk, the fund maintains a well-diversified portfolio. The fund has at present allocated 36.96% of assets to Giant/Large caps, 48.19% of assets to midcaps and 14.85% of assets allocated to small-cap holdings. In case small and mid caps runs up too much ahead of fundamentals during a particular market phase, fund reduces exposure to riskier assets and shifts allocation to large caps which have relatively better downward protection.
Since the fund diversifies across sectors in mid-cap space too, so the fund manager and the team needs to dig deep into the company fundamentals before taking any investment decision. So an excellent fund manager and a credible team is a prerequisite here if fund needs to deliver consistent year on year performance.
Mr. Chirag Setalvad (since April 2, 2007)
Collectively over 14 years of experience, of which 11 years in Fund Management and Equity Research and 3 years in investment banking.
Mr. Rakesh Vyas
Dedicated Fund Manager for Overseas Investments
Collectively over 13 years of experience of which 3 years in Application Engineering (Control & Automation) and 8 years in equity research.
Portfolio Holdings (as on April 28, 2017)
Fund portfolio is pretty diversified at present with Banking/Finance allocated 21.83% followed by Engineering sector with 13.05%. Manufacturing and Chemicals are next with 7.19 and 7.21 allocation respectively. Good quality businesses such as IndusInd Bank, Voltas, UPL, Balkrishna Industries, MRF feature in the top 10 list. Fund has currently close to 66 stocks in the portfolio with a maximum allocation to a stock stands at 3.13% of assets. Fund has currently allocated 4.50% in HDFC Liquid Fund – Direct Plan – Growth Plan as it keeps looking for growth stable businesses across sectors to put in fresh money.
|Tube Investments of India Ltd||Miscellaneous||3.13|
Sector Allocation (as on April 28, 2017)
|Sectoral Allocation ( April 28, 2017)
The fund has a relatively diversified portfolio with a maximum allocation to top equity holding at 3.13%. Such a diversification has helped the fund in difficult times such as in the year 2008 – fared relatively better than benchmark during economic downturn returning -51.51 against -58.75 by Category (Small and mid cap). In the year 2011 also, the fund was able to control losses better than benchmark returning -18.31 against -25.67 by Category (Small and mid cap). If one looks at the long-term return performance of the fund, it has emerged to be an impressive performer.
Though the fund doesn’t feature in top 10 Small and mid-cap funds in 1 year, 2 years, 3 years and 5 years duration, the fund has its own set of loyal and committed investors who are satisfied with fund’s performance with relatively low risk and invest via SIP mode. Returns are also pretty decent if you look at the compounding story the fund has been and that too with relatively low volatility which you normally associate with mid-cap funds. ‘Consistency’ in generating high risk-adjusted performance is the hallmark of the fund. The fund has seen many market cycles and has consistently shown above average performance over the years. A major chunk of this credit goes to the fund manager and his team. Fund has given exemplary 23.54% returns (CAGR) since inception with a relatively low risk which a mid-cap fund normally carries. Fund’s 5-year returns stand at 27.38% which is again the testimony of fund’s consistency.
Fund price to prospective earnings ratio stands at 18.72 indicates that fund looks for a blend of value as well as growth oriented companies in large, small and mid-cap space and doesn’t ride solely on momentum stocks.
Compounding Effect – HDFC Mid-cap Opportunities Fund
‘If an investor would have started investing 5000 per month in HDFC Mid-cap Opportunities Fund (Growth option) from Aug 01, 2007 till May 1, 2017 – SIP return would have been an impressive 23.54% (Compounded Annualized Growth Rate)’
Total SIP investments: 118
Total amount invested – 590,000.00
Investment Value as on May 1 2017 – 1,969,214.05
Fund Performance (As on 12/05/2017):
|1 month||3 months||1 year||3 years||5 years|
Fund SIP Performance ( As on 12/05/2017):
|1 year||3 Years||5 years|
Fund has given a tough fight to the likes of Mirae Emerging Bluechip fund, Franklin Prima Fund, Franklin India Smaller Companies Fund and Principal Emerging Bluechip fund. Fund do have some bouts of underperformance as compared to peers but over a long term period, the fund has managed to generate good returns. Investors investing in the fund ideally should resist the temptation to switch from this long-term performer to funds which have outclassed it in the short term.
|Scheme Name||1 year return||3 Years return||5 years return|
|Franklin India Prima Fund (Growth)||33.31||29.47||26.2|
|UTI Midcap Fund (Growth)||27.58||28.61||25.92|
|Mirae Emerging Bluechip Fund (Growth)||43.49||34.82||29.88|
|Principal Emerging Bluechip Fund (Growth)||40.63||30.91||27.39|
|Birla Sun life Pure Value Fund (Growth)||37.03||31.87||26.37|
|Motilal Oswal MOSt Focused Midcap 30 Fund||29.43||31.07||–|
Risk Parameters (3 years):
The fund takes relatively below average risk and tries to generate superior risk adjusted returns. A beta of less than 1.0 indicates that the investment will be less volatile than the market, and, correspondingly, a beta of more than 1.0 indicates that the investment’s price will be more volatile than the market. Fund’s beta of .907 indicates superior risk-reward ratio.
Standard Deviation (%) – 4.730
Sharpe Ratio – 0.365
Beta – 0.907
Computed for the 3-yr period ended March 31, 2017
The fund is one of the best in the category in spite of it not being top performer year on year. The fund has a relatively diversified portfolio with a maximum allocation to top equity holding at 3.13%. The fund in the year 2008 – fared relatively better than benchmark during economic downturn returning -51.51 against -58.75 by Category (Small and mid cap). In the year 2011 also, the fund was able to control losses better than benchmark returning -18.31 against -25.67 by Category (Small and mid cap). The fund’s consistency in generating consistent returns with low risk under an extremely competent fund manager makes it a core portfolio fund in which you can invest for your long-term goals.
Investors must understand that all midcap funds are not similar as regards kind of investment strategies they follow and the amount of risk they take to generate returns. So investors should dig deep into fund’s strategy before making a comparison among various fund offerings and returns they are delivering year on year. Investors often make a mistake of switching out of the fund after comparing short-term returns with funds of the same category but different investment philosophy. Do remember in a team, you also need exceptional steady performers such as Rahul Dravid and HDFC Midcap Opportunities holds similar place in your mutual fund porfolio.
The fund is managed by a very experienced fund manager who has an excellent reputation of controlling downside as well as provide steady growth in funds he manages. His presence is a big assurance to the investors as regards consistently good fund performance.Though the fund is not among the top of charts – it’s consistent, high-risk adjusted returns managed by excellent fund manager makes it a darling of investors.
However, investors still need to keep a tab on the fund performance in lieu of fast-growing fund AUM which has swelled over the years. With such huge money pouring into the fund and absence of a lot of consistent growth stories, how fund manager navigates through such times and also generate consistent returns needs to be seen.
The fund can be a fresh small and mid-cap holding addition to a mutual fund portfolio. Having said that make sure investors invest through SIP route only and refrain from investing the lump-sum amount. Investment in mid-cap funds should be done only if your time horizon is more than 5 years or so and you have a stomach to digest volatility time to time. Existing investors should continue SIP and can also increase their SIP amount going forward as investible surplus increases. Don’t withdraw units in case market goes through a steep correction. Keep investing in line with your goals. Keep track of fund performance going forward and we hope it lives up to its top billing.
Disclaimer: The author has investments in HDFC Midcap Opportunities Fund – Direct Growth and opinion may be biased. Please consult your financial advisor before taking any investment decision. The write-up is for information purpose only and is not an advice of any sort to the readers.