LAUNCHED in June 2007, HDFC Mid-Cap Opportunities Fund was started as a three year closed-ended scheme. It was subsequently converted into an open-ended scheme in June 2010.
The fund has been ranked as Crisil Fund Rank 1 in the small & midcap equity category according to Crisil Mutual Fund Ranking methodology over two of the last four quarters and has been present in the top 30 percentile in the category for all the four quarters. Crisil Mutual Fund Rank 1 funds form the top 10 percentile of the ranked universe representing very good performance vis-à-vis category peers.
The fund, managed by Chirag Setalvad, has assets under management of `1,275 crore as of April 30, 2011 and has outperformed its peers and the benchmark (CNX Midcap Index) in the 1, 2 and 3 year time frames.
INVESTMENT APPROACH
The fund's objective is to earn capital appreciation by investing in equities of small and mid cap companies. While these companies have a higher return potential than large cap companies, they also carry a higher risk. To minimise its risk, the fund invests up to amaximum of 25 per cent of its net assets in large cap equities. It can also invest in debt and money market securities up to amaximum of 25 per cent of its net assets. The fund has held an average of 50 stocks in its portfolio since its inception.
AUM GROWTH CYCLE
After the economic meltdown of 2008, the assets under management of the fund have almost doubled from `692 crore at the end of November 2008 to 1,275 crore at the end of April 2011.
PERFORMANCE
The fund has delivered higher returns than its benchmark and the peer group across 1, 2 and 3 year time frames. Over the last 1 year, the fund has given 15.23 per cent returns as against 1.19 per cent by the benchmark and 5.11 per cent by the peer group. This can be attributed to the fund being overweight on sectors such as pharmaceuticals vis-à-vis the benchmark.
Over a slightly longer term of 3 years, the fund gave 16 per cent returns vis-à-vis 5.63 per cent and 8.09 per cent of the benchmark and the peers, respectively. The higher return can be attributed to the manager's stock selection abilities. Stocks such as Carborundum Universal, Federal Bank and Grindwell Norton have contributed to the fund's higher return compared to the benchmark.
Further `1,000 invested in the scheme since its inception (June 2007) would have almost doubled to `1,525 as on May 12, 2011 as against `1,363 in the benchmark index and `1,337 in the peer group.
RISK ANALYSIS
The fund's volatility (measure of risk) has been lower compared to its peers and benchmark (see chart, Volatility Trend). In spite of this, the fund was able to generate a higher alpha of 0.17 over the last 1 year against the peer average of 0.05.
PORTFOLIO ANALYSIS
Higher equity exposure: On an average, the fund has maintained an equity exposure of 94 per cent over the last three years, second highest in its category. As against this, its peers have maintained an average exposure of 90 per cent in equities.
The fund maintained high equity exposure even during the bear run of 2008. From October 2008 to March 2009, the average equity exposure of the fund was 93 per cent vis-à-vis 80 per cent of its peers. By remaining invested in equities during the downtrend, the fund captured higher returns when the markets recovered in 2009.
Portfolio diversification: The fund is well diversified at the company level. Over the last three years, the fund has held an average of 52 stocks in its portfolio. As of April 2011, the top 5 stocks formed 18 per cent of the total portfolio as against an average of 22 per cent by the peer group with the top holding not constituting more than 5 per cent of total net assets. In terms of industry exposure, the fund is well diversified across an average of 16 sectors over the last three years.
Consumer non-durables, pharmaceuticals and banks have been the top 3 sectors of the fund over the last 3 years. The pharmaceutical and banking sector have returned annualised 12-14 per cent returns over the same period.
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