Birla Sun Life Midcap: HOLD

Performance which lags peers and relatively low consistency of returns have weighed down the Birla Sun Life Midcap fund. Though the fund has outdone its benchmark - the CNX Midcap index - over one-, three- and five-year periods, many of its rivals have managed higher levels of outperformance. ICICI Pru Discovery, HDFC Midcap Opportunities, IDFC Sterling Equity and UTI Midcap for example, have beaten CNX Midcap by a much wider margin in the same periods. Birla Midcap is among the mid to bottom quartile of schemes in its category. Hence, investors need not consider fresh exposures to the fund. Existing investors though can continue to hold the units.

To its credit, the fund contains losses reasonably in market downturns. In the 2008 fall, it was the timely reduction in equity exposures that came to its rescue. In 2011, it rightly tapered off its holdings in the banking and finance space and took refuge in consumer non-durables.

But the fund’s record in rallies hasn’t been spotless. While it did outperform the benchmark in the 2009 rally, in both 2010 and 2012, BSL Midcap has trailed its benchmark by 2.5 -5.5 percentage points. One of the main reasons for the weak show in 2010 was the limited exposure to mid-cap software stocks and banking stocks which did well during this season. Although the fund had quality picks. such as Mindtree, it reduced its holding from about 8 per cent in the software sector to nil during 2010. . In 2012, a year marked by a rally in mid-cap stocks, the fund lost out on stock selection. It increased stakes in underperformers, such as AIA Engineering, NIIT Technologies and Crompton Greaves. It increased exposure to top-performing stocks, such as FAG Bearings and Karur Vysya Bank late and missed out on the substantial rally witnessed in the shares of these companies.

Overall, in the last five years, the fund’s returns have outdone the benchmark only 65 per cent of the time, making the timing of the investment in the fund important to deriving high returns.

Portfolio The fund has increased holdings in the banking space in the last two-three months, after cutting down exposure previously, perhaps looking for value in beaten down stocks. But interestingly, it has also increased holdings in the consumer non-durable holdings sector during this period, from about 5 per cent in April to 11.5 per cent now. It remains to be seen if these strategies work. Sundaram Finance, Mindtree and Bajaj Corp are recent additions while Dish TV and Oriental Bank of Commerce are recent exits.

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