HSBC Midcap Equity: Sell

Investors can sell their units in HSBC Midcap Equity, given its lacklustre performance record since its inception.

Since its launch in May 2005, the fund delivered 9 per cent annually, considerably underperforming the 17-20 per cent compounded annual returns generated by peers such as Sundaram Select Midcap and Birla Sun Life Midcap.

The fund considerably lagged its peers over three- and five-year periods as well. Investors who held this fund for five years (through lumpsum mode), would have made no gains on their holding. A five-year SIP would actually have resulted in a loss of capital.

Investors who earned the 25-per cent return clocked by the fund over the last three years should also use the opportunity to exit. While the returns may seem good, mid-cap funds as a category managed 37 per cent compounded annual returns over the same period. In fact, the top four funds in the category managed over 45 per cent annual returns in this period. HSBC Midcap thus underperformed in the three-year rally since the market lows in March 2009.

Strategy: Investors who wish to hold mid-cap funds can consider HDFC Midcap Opportunities or IDFC Premier Equity Fund. These funds have delivered the kind of returns that mid-cap funds are expected to offer, given the higher risks that they carry. For instance the risk adjusted return as measured by the sharpe ratio of HSBC Midcap Equity is at 0.6 compared with 1.31 for HDFC Midcap Opportunities. This clearly implies that the risk-adjusted return of the latter is far superior. HSBC Midcap also has a far higher beta that suggests that it is a volatile fund.

Performance : Year to date, the fund clocked 28 per cent and is among the top three performers. The recent market rally has ensured that funds that have lagged behind made some quick gains. This offers a good opportunity for existing investors to switch their investments to more consistent performers.

In the 2008 market crash, the fund lost as much as 66 per cent of its value and marginally bettered its benchmark. In the 2009 rally, although the fund clocked close to three digit returns, it still trailed its benchmark BSE Midcap by eight percentage points. In 2011, the fund lost 44 per cent of its value despite its top holdings being banks and consumer non-durables. The poor show is mainly on account of its stock selection.

Portfolio Overview : The fund has 33 stocks in its portfolio.

Its assets are concentrated in the top ten stocks, which account for 50 per cent of the assets. However, the fund's assets are spread across 19 sectors.

The consumer non-durables sector has been a winner in the stock markets in recent years, but the mid-cap stocks held in this space let down the fund.

Similarly, in the banking space, underperformance of Dena Bank and Union Bank of India dragged the portfolio return.

The fund is managed by Mr Dhiraj Sachdev.

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