Mutual Funds

How small-cap funds did well

Yoganand D | Updated on September 14, 2013


Even as the small-cap index tumbled, the funds which play on this theme managed to limit losses.

BSE small-cap index has plunged 17 per cent in the past one year, underperforming other indices by a wide margin. The BSE mid-cap index has tumbled only 9.5 per cent in this period, while bellwether indices Nifty and Sensex posted gains of 8 and 10 per cent, respectively. The small-cap fall is even worse in the year to date, with the small-cap index plummeting 26 per cent

But even as the small-cap index tumbled, small-cap funds managed to limit losses in the past one year, and have beaten the index. We take a look at the small-cap funds performance over the past few years, how they limited the losses.

There are three funds in this category — DSP BR Micro-Cap, HSBC Small Cap and Reliance Small Cap. All three have managed to beat the BSE Small-cap index over the past one year.

Best performer

Among the three, DSP BR Micro-Cap has outperformed both peers and benchmark over the one, three and five year time frames. In the year to date as well, while the BSE Small-cap index sank 26 per cent, the fund contained loss to 18 per cent.

What helped was the heavy weight towards pharmaceuticals, a sector which has zoomed in the past year and a half. The sector accounts for 12.5 per cent of the portfolio with top stock holdings being Indoco Remedies (5 per cent) and Natco Pharma (4.5 per cent).

Other major sector holdings are pesticides, banks, and software, with average allocations of 8.5 per cent each. The fund upped its allocation in the stock of Bayer Cropscience from one per cent in July 2012 to 5.2 per cent in August this year, making it the top holding. This stock has gained 52 per cent in the past one year. It trimmed allocations to poor performers such as Karur Vysya Bank and Sadbhav Engineering — these were among the top holdings a year ago. Other top stock holdings, which have also seen prices zoom, are NIIT Technologies and Solar Industries India.

Reliance Small Cap, with a bias towards software and pharmaceuticals (14 per cent each), two outperforming sectors, has also done well. Rise in cash and debt holdings also helped stem losses. The fund’s top stocks include Persistent Systems, Biocon, Zydus Wellness and Venky's (India).

Poor stock choices

HSBC Small-cap has managed to slightly outperform the BSE Small-cap index over the one, three and five year period. But in the year to date, the fund stumbled, falling in line with the benchmark and declining 25 per cent.

The fund took a correct sector call and loaded up on the outperforming FMCG sector with a 20 per cent allocation. But high holdings in beleaguered sectors such as financials (15 per cent of its portfolio) brought down returns. The other top sector is automobiles.

The fund also got some stock bets wrong, with those such as Orient Paper & Industries, Rane Holding, Nucleus Software and Sadbhav Engineering, in which it had high holdings, underperforming the index drastically.

Published on September 14, 2013

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