The Hindu Business Line : JM Small & Mid-cap Fund: Hold

Investors can retain their holdings in JM Small & Mid-cap fund. Launched in April, the fund has been able to capitalise on the recent re-rating in mid-cap and small-cap stocks. JM Small & Mid-cap has delivered about 60 per cent in the last six months, figuring in the top quartile of performance rankings. Its benchmark, the CNX Midcap, trails the fund marginally with a return of 54 per cent during this period.

JM Small & Mid-cap defines mid-cap stocks as those with a market capitalisation that ranges between Rs 800 crore to Rs 8,000 crore. Small-cap stocks are defined as those with a market cap of less than Rs 800 crore. (These ranges are based on the current market cap of the last stock in the Nifty). The fund typically invests about 80 per cent in mid-cap stocks and about 20 per cent in small-cap stocks.

Suitability: JM Small & Mid-cap has a small asset base. This allows it to take big stakes in mid-cap stocks with low volumes without having to suffer impact costs, a problem that is faced by some of the larger funds in the category. It is, therefore, better placed to capture the full potential in the mid-cap and small-cap segment unlike larger funds, which may have a more restricted investment universe.

On the other hand, the concentrated nature of the portfolio heightens risks and exposes the fund to major mid-cap corrections of the kind witnessed in the last two years.

In any case, as a category, funds focussed on mid-cap and small-cap stocks are suitable only for investors with a high- risk appetite, given the heightened volatility and liquidity problems associated with these stocks.

For those who do have an aggressive risk appetite however, JM Small & Mid-cap might be a suitable choice. There are currently not many open-end offerings in the mid-cap category that have a dedicated allocation to small-cap stocks. Most small-cap funds are close-ended, offering limited exit options.

Performance: JM Small & Mid-cap has performed well in the short time-frame since its launch. The fund has managed a strong performance despite encountering significant redemption pressure in the last couple of months. (Despite a 67 per cent appreciation in its NAV since launch, its asset base has remained at about the same levels). This seems to have forced the fund to prune holdings from about 25 stocks in June to 17 in November.

The fund booked profit in stocks where there had been a significant run-up in prices, such as Greenply Industries, Era Construction, Apar Industries and Sanghvi Movers. Stocks such as Nagarjuna Construction, Sintex Industries, Gitanjali Gems and Hanung Toys are some other mid-cap favourites that figure prominently in the portfolio.

While its performance has outpaced most other mid-cap funds during this period, investors can wait to evaluate the fund over a longer period before contemplating new exposure.

Portfolio overview: The portfolio is heavily concentrated with the top five stocks alone accounting for 42 per cent of the assets. Hanung Toys, which had a 4.5 per cent share in the portfolio in June, is now the top holding in the fund, accounting for 10.5 per cent of the assets. Bombay Rayon Fashions and House of Pearl Fashions are other textile stocks in the portfolio.

This is interesting, as the market has ignored the textile sector for a long time now. However, the fund does not display any sector bias in particular and appears to follow a bottom-up approach.

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