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K. Venkatasubramanian

Investors can buy the units of Birla Sunlife Midcap Fund (Birla Midcap) considering its track record in delivering superior returns during market upswings and ability to reasonably contain downsides. The fund has bettered benchmark CNX Midcap over one-, three- and five-year periods.

Over a five-year period, it has delivered a compounded annual return of 28.5 per cent, placing it among the top few funds in the mid-cap category.

Birla Midcap has stuck to its mandate of investing in predominantly mid-cap stocks and has also not moved into cash during market volatility. This makes it more suitable for investors with a penchant for risk. Others may consider investing through the systematic investment route to ride out volatility in NAVs.

Performance and strategy: In the bull run from mid 2006 to early 2007 and again in the recent rally from March 2009, Birla Midcap has managed to outperform its benchmark – CNX Midcap. In the 2007 bull-run though the fund marginally lagged behind its benchmark it still generated triple-digit returns. However it bettered the BSE Midcap index on all three occasions.

Being a fund focussed on mid-cap stocks (60-70 per cent of the portfolio consists of stocks less than Rs 7500 crore market capitalisation), a segment that had a fantastic run from 2006 to early 2008, the fund has managed to gain substantially from these rallies.

But it has also during periods of market declines in 2004, 2006 and the protracted correction in 2008-09, managed to contain losses better than its benchmark. Taken together this return track record makes the fund a good addition to portfolio of an investor.

Despite the markets correcting very significantly in 2008, the fund held less than 10 percent of its portfolio as cash, barring a few months when the proportion had gone up. Birla Midcap has increased the number of stocks from 45 levels a year ago to 60 stocks in its May 2009 portfolio. This may have diversified the extent of risk in the portfolio. Also, no stock in the portfolio has an exposure of more than 5 per cent.

In 2008, a large share of the portfolio was invested in defensives such as consumer non-durables and pharma, which may have helped protect erosion of NAVs.

But over the last few months, sectors that witnessed sharp rallies such as capital goods, banks, power and construction are back among the top few sectors held by the fund. Birla Midcap’s recent portfolio indicates that it has invested in 60 stocks across as many as 20 sectors and has consciously avoided concentration in select sectors. This may partly insulate the fund from any broader market correction.

Fund Facts: The NAV per unit of the growth option is Rs 75.6.

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