The Hindu Business Line : HSBC Midcap Equity: Hold

Investors can retain their units in HSBC Midcap Equity as the fund witnessed improved performance over the past six months. It sticks to its mandate of investing predominantly in mid-cap stocks. In comparison, peers such as Birla Midcap and Magnum Midcap have a sizeable exposure to large cap stocks and have taken advantage of the recent rally in the large cap space.

This has resulted in these funds outpacing HSBC Midcap by 12 and 18 percentage points, respectively, over a one-year period. Investors planning to build a portfolio for the long term can still consider staying with the fund since mid-caps hold the potential to outperform over a longer time frame.

In the recent past, mid-caps have proved to be more vulnerable than large-caps during market corrections. The fund, therefore, holds the risk of more volatility than other mid-cap funds with large-cap exposure. However, during the correction in February 2007, the fund managed to contain losses well when compared to Magnum Midcap.

But overall, the fund has trailed its benchmark BSE 200 in 13 out of the past 20 months, reflecting a tough time managing a mid-cap portfolio.

Performance: The fund’s NAV has grown by 54 per cent and is trailing the benchmark by four percentage points. In the last quarter of 2006, the return generated by Birla Midcap, Magnum Midcap and HSBC Midcap appears identical but after the correction in February 2007, the large cap exposure of Birla and Magnum aided them to post 58 per cent and 60 per cent in the last six months, close to 15 percentage points over HSBC Midcap.

Portfolio Overview: HSBC Midcap Equity Fund has a compact asset size as its assets have not grown as much as the NAV over the past one year.

The fund had higher tilt towards capital goods during the earlier part of this year but gradually reduced exposure. Over the past six months, the allocation is spread over capital goods, metals, construction and energy.

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