HDFC Mid-cap Opportunities: Invest :: Business Line

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Mid- and small-cap stocks have faced the real brunt of the economic slowdown, losing over a fourth of their value in 2013, severely underperforming the Sensex and the Nifty. Though the pain in mid-cap stocks may continue for some more time, the recent correction offers a good buying opportunity in schemes with a good track record. Investors with a two-three-year time horizon may consider investments in quality mid-cap schemes, such as HDFC Mid-cap Opportunities.

CONSISTENT PERFORMANCE

Right sector and stock choices helped the fund clock top quartile performance consistently across all time periods. But given the high-risk nature of the fund, investments may be staggered over a period of time through the SIP mode.

A systematic monthly investment of Rs 1,000 in the fund over the last five years would have earned annual returns in excess of 11 per cent. In the last five years, 86 per cent of the time the fund’s performance has been better than its benchmark.

BETTER THAN PEERS

The fund not only managed to surpass the average returns of others in the mid-cap category but also fared better than peers — ICICI Pru Midcap, Canara Robeco Emerging Equities and Kotak Mid-Cap — across time frames.

In cyclical downturns, the fund has demonstrated its ability to contain downside better than its benchmark. During the period January 2008-February 2009, even as the BSE Mid-cap lost 72 per cent, the fund managed to arrest the decline at 57 per cent. Being underweight in sectors such as industrial materials, oil and gas, hotels and auto components helped performance.

Stock selection also helped the fund curb the fall in its NAV. Avoiding stocks such as Essar Oil, GE Shipping, Glenmark Pharma, CESC Ltd and CPCL also helped prevent a slide.

Similarly, during recovery phases, the fund has successfully managed to clock gains higher than its benchmark.

During the market rally beginning March 2009 lasting up to November 2010, the fund clocked 191 per cent gains, higher than the 181 per cent jump by BSE Midcap Index.

Higher allocation towards defensive sectors — healthcare and consumer discretionary — and lower allocation towards financials helped the outperformance. Also, exposure to select auto component stocks — NRB Bearings, FAG Bearings and Amara Raja Batteries lifted the fund’s NAV.

The fund held 68 stocks in its portfolio at the end of July with an average market capitalisation of nearly Rs 7,900 crore.

The fund is heavy on pharma which, in addition to being defensive in nature, may also benefit from the weakness of the rupee.