The Hindu Business Line : Magnum Midcap Fund: Hold

Investors in mid-cap funds need to be prepared for sharp knocks in performance similar to the kinds witnessed in May-June 2006 and in February 2007.

Shanthi Venkataraman

Investors can retain their units in Magnum Midcap Fund. The fund has been among the top performers in the mid-cap category over the past year.

Mid-cap fund performances have been sharply divergent over this period, as a selective rally made stock selection a crucial factor in determining outperformance.

Magnum MidCap delivered a return of 75 per cent over a one-year period, a strong one, coming as it does on the back of a deep correction in mid-cap stocks witnessed last June. Its returns beat its benchmark CNX Midcap Index by a good margin and match those of peers such as Birla Mid Cap and PruICICI Emerging STAR.

Magnum MidCap Fund has the mandate to invest in mid-cap stocks with market capitalisation ranging from Rs 200 crore to Rs 2,000 crore. However, it has not adhered strictly to this.

Going by the latest portfolio, about half the assets are invested in larger mid-cap stocks, typically those between Rs 2,000 crore and Rs 5,000 crore. This allocation has not gone against the fund, however, with the more liquid mid-caps being at the forefront of the recent rally. Some of the earlier mid-cap picks of the fund, such as Thermax, Pantaloon Retail and Crompton Greaves, now fall well in the realm of large-caps.

The strong returns posted by mid-cap funds such as Magnum MidCap may make them tempting investment options, but such funds are suitable only for aggressive investors.

Investors in mid-cap funds need to be prepared for sharp knocks in performance similar to the kinds witnessed in May-June 2006 and in February 2007.

Given the short track record of this fund, it should remain a small portion of your overall fund portfolio,

Performance

As against the CNX Midcap, Magnum MidCap has managed to deliver a better return even on a risk-adjusted basis over the past two years. It beat the benchmark almost 60 per cent of the time in 24 months.

Its superior performance could be attributed to its exposures in capital goods, stocks and metals, which have been outperformers. Stocks such as Maharashtra Seamless, Thermax, Infotech Enterprises and Crompton Greaves, which have remained among its top holdings over the past year, have more than doubled during the period. But the fund was underweight on banking.

Portfolio overview

Magnum MidCap has scaled up the number of stocks in its portfolio from 35 in June 2006 to 50 currently.

Concentration of the portfolio in the top 10 stocks stands reduced from 50 per cent to 40 per cent as a result of more tempered exposures to stocks.

Capital goods, metals, energy and construction sectors form the core holdings and account for more than 40 per cent of the portfolio.

The fund added stocks such as GMDC, Jindal Saw, Kesoram Industries and RPG Transmissions between June 2006 and now.

The picks have paid off handsomely. It also weeded out underperformers such as GVK Power, Inox Leisure, United Phosphorous and Welspun India.

Magnum MidCap was launched in March 2005. It has an asset base of Rs 430 crore.

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