Mutual Funds

HDFC Midcap Opportunities: Buy

Bhavana Acharya | Updated on November 22, 2014


The fund has beaten the index 86 per cent of the time since its launch

Jumping into the stock market never seemed more tempting. And some of the mid- and small-caps certainly look attractive bets. A way to play the mid-cap game is to invest in mutual funds along this theme.

But it’s safer to stick to funds which have been around for longer and performing consistently. Among the good performers on these counts is HDFC Mid-cap Opportunities. Since its inception in mid-2007, the fund has beaten the CNX Midcap index a solid 86 per cent of the time on an annual rolling return basis. Over the longer term, it ranks in the top quartile of mid- and small-cap funds.

Investors who wish to buy mid-caps and bear higher risks can invest in this fund, using systematic monthly investments to ride out market phases.

Spreading the risk

In the one-, three-, and five-year periods, HDFC Mid-cap Opportunities has beaten the CNX Midcap index, its benchmark, by a wide margin of 10-18 percentage points. Even in markets trending southward, the fund’s performance has stayed ahead. The fund remains invested across market cycles, taking very limited cash calls, allowing it to reap benefits when markets surge. Concentrated bets are also not taken, with the top ten stock holdings making up less than 35 per cent of the portfolio most of the time.

Aurobindo Pharma, the fund’s top holding now, is just 4 per cent of the portfolio, with Ipca Labs and Supreme Industries taking the next two spots with just around 3 per cent each. The number of stocks in its portfolio is also frequently upwards of 60. This strategy helps diffuse risks and mitigate the vulnerability of portfolio returns to wild price swings of a few stocks. The fund doesn’t churn its portfolio frequently either, avoiding momentum-driven stocks.

Sector choices are also widespread, though pharmaceuticals, software, and banking have passed the top holding baton between them for the past six years.

From August last year, the fund has added to bank holdings such as Union Bank and ING Vysya Bank, cutting back on software. Holding on to consumer durables Voltas and Blue Star has also paid off handsomely. Agro-chemicals, plastics, and FMCG are other sectors where the fund has moved in and out of.

Published on May 31, 2014

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