Mutual Funds

Birla Sun Life Midcap: Hold

Suresh Parthasarathy | Updated on October 29, 2011

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Investors with high-risk appetite can retain their holding in Birla Sun Life Midcap Fund based on its long-term track record. The fund's performance over the last two years is disheartening as it has failed to keep pace with its historically successful performance.

While fresh exposure can be avoided now, investors can still hold the fund based on its ability to better its benchmark CNX Midcap fund across market cycles.

Any fresh investments can now be made in steady performers such as IDFC Premier Equity or HDFC Midcap Opportunities. The fund clocked a compounded annual return of 30.7 per cent and 10.4 per cent over three -and five-year periods respectively. Returns delivered by its benchmark CNX Midcap, over the same period, were 27 per cent and 8 per cent.

The fund's poor show over the past two years has not only pushed its ranking below the top two quartiles in the mid-cap category performance chart but affected its long-term returns picture too.

Mid-cap funds are typically impacted more in a volatile market and are hence considered more risky than their diversified peers. Birla Sun Life Midcap's aggressive investment calls and its high equity exposure during volatile market periods further increase its risk profile. While this risk was adequately compensated with category-beating returns in earlier years, a few sector calls that did not work well resulted in later underperformance.

Performance: The fund lost 20 per cent of its NAV in the past one year but still performed better than the 24.5 per cent fall in its benchmark index. Although the fund's returns beat the category average in 2007 and 2009, in 2010 it not only trailed top peers, but underperformed its category average by 7 percentage points.

Given its poor show in the recent period, if SIPs are up for renewal, investors can consider postponing them until there are clear signs of improvement.

Portfolio: Birla Sun Life Midcap sports a well diversified portfolio of 51 stocks. The fund rarely holds over 3 per cent in any single stock. It holds 21 sectors in its portfolio, with the top three - consumer non durables, pharma and banks - accounting for 38 per cent of the portfolio.

Although the consumer non-durables sector cornered higher weight in the September 2011 portfolio, the fund failed to participate in the sector rally due to the lower weight given to the sector in 2010.

One other call that did not work in the fund's favour was its prolonged bullish stance in the infrastructure sector at a time when most of the funds turned bearish on infrastructure.

Birla allocated 6.7 per cent of the assets to this space. This too dragged performance. However, its stock holdings such as Sadbhav Engineering and Simplex Infrastructures may be early beneficiaries on a sector revival.

The fund took a better call in banks, where it pruned exposure, thus reducing the downside risk to its portfolio. The fund is managed by Mr Sanjay Chawla.

Published on October 29, 2011

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