SUNDARAM SMILE, the fund that seeks to invest in leading small and medium sized companies, has out-performed the CNX Midcap 200 since its launch. This is a notable achievement as almost all mid-cap funds have struggled to beat CNX Midcap 200 over the past 12 months.
It would be better to observe the fund's performance over the next 12 months before thinking of fresh investments. Its mandate is to invest up to 65 per cent in stocks whose market capitalisation is less than Rs 4,000 crore.
Performance: The fund was launched in January and investment allocation started in mid-February. Since then , SMILE has registered returns of 13.6 per cent compared to CNX Midcap 200's returns of 10.6 per cent and BSE 500's returns of 1.5 per cent.
The fund has had the advantage of enhancing the level of investment in stocks in a phased manner. For instance, it was only 60 per cent invested at the end of April.
This may have contributed to the fund's performance which is still impressive as the prices of mid-cap and small-cap stocks have been volatile.
BSE's Midcap Index has out-performed the CNX Midcap 200 since its launch in April. But Sundaram SMILE has stayed ahead of BSE Midcap as well. BSE's Small-cap index has, however, done better than Sundaram SMILE.
Out-performing the mid-cap and small-cap indices is likely to become increasingly difficult. In this backdrop, as long as index funds tracking mid-cap and small-cap indices are not launched, funds that out perform or closely track these indices would add value to an investor's portfolio.
Diversified portfolio: In size, Sundaram SMILE is almost as big as Sundaram Midcap with about Rs 350 crore of assets under management. At the end of May 2005, the fund had nearly 100 stocks in its portfolio and cash to the extent of 20 per cent of its net assets.
The top ten stocks in its portfolio accounted for about 20 per cent of net assets. Most of the top ten were large-cap stocks. In the mid-cap and small-cap space, the fund's holdings were even more extensively diversified. The bottom 50 stocks account for only 20 per cent of net assets.