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Investors can buy the units of HDFC Mid-cap Opportunities fund, in the light of its exemplary performance over the past few years. Over one-, three- and five-year timeframes, the fund has managed to outpace its benchmark — CNX Midcap — by as much as 7-12 percentage points.
The fund has managed to ride out market volatility much better than most schemes with a similar mandate. Given its set of quality mid-cap stocks still trading at attractive valuations and at a discount to large-caps, there is an opportunity to build a long-term portfolio with such stocks.
In the past five years, HDFC Mid-cap has managed to deliver 10.4 per cent annually, placing it among the top few funds in its category. The fund’s returns over this period are better than peers’, such as DSPBR Small and Midcap and Sundaram Select Midcap and slightly lower than best in the category — IDFC Premier Equity and ICICI Pru Discovery.
By taking non-concentrated exposure to stocks or sectors, the fund has managed its risks, normally associated with mid-cap schemes, quite well. Also, churning momentum-based sectors with an eye on valuations has helped the fund ride market movements fairly well.
HDFC Mid-cap is suitable for investors with an above-average risk appetite, looking to stay invested for longer timeframes of about five years. Investors can also take the SIP (systematic investment plan) route to taking exposure in the fund.
Portfolio and strategy
Despite being a mid-cap fund, the scheme has never gone overboard on taking cash positions to contain downsides. In the last two-three years, HDFC Mid-cap’s portfolio had cash and debt positions to the tune of 4-6 per cent.
Industrial products, pharma and banks have always been among the top few sectors held. The pecking order is based on a combination of momentum and valuations. So as valuations become expensive in industrial products, the fund increases exposure to a more attractive banks segment.
Earlier the fund had auto ancillary among its top sectors, but has reduced exposure to the segment as valuations became uncomfortable and the slowdown in the auto segment reduced attractiveness.
HDFC Mid-cap churns stocks quite actively with as many as 29 shares being exited in the last one year and about 12 being entered into. The fund mostly restricts exposure to individual stocks to much less than five per cent of the portfolio. This reduces risks significantly.
Stock picks made by the fund have worked quite well — Carborundum Universal, NIIT Technologies, Bata India, Zee Entertainment, Ipca Labs and FAG Bearings — all had a fantastic run in the market. The NAV per unit of the growth option is Rs 17.1.
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