HDFC Midcap Opportunities: High returns, if you are game for high risk

While benchmark large-cap indices, such as Nifty and Sensex have lost less than 10 per cent in the volatility over the last six weeks, the BSE Midcap Index has tanked by about 25 per cent.

If you have a high risk appetite, it may be a good time to add quality mid-cap funds with proven track record to your portfolio. HDFC Midcap Opportunities is one such fund. Investment through the SIP route can be considered in the fund, from a three- to five-year horizon.

In the last five years, the scheme’s return has been higher than that of the CNX Midcap almost 99 per cent of the time.

Historically, the fund has managed to contain downsides better than its benchmark during down cycles.

It outperformed the benchmark by a wide margin during rallies.

The fund has clocked higher returns than its benchmark and the category average across one-, three- and five-year time frames. However, the outperformance has narrowed from 10-12 percentage points over three- and five-year periods to about 5 percentage points on a one-year basis.

This was largely on account of the lacklustre performance since January 2015, on the back of a steep fall in the prices of some mid-cap stocks. For instance, the stock of forged component maker Metalyst Forgings (erstwhile Ahmednagar Forgings) tanked by over 80 per cent since January this year.

This was on account of the company’s poor performance in the December quarter and also due to its association with the troubled Amtek Auto as a group company. Metalyst’s stock had almost trebled between August 2013 and January 2015, before starting its down cycle.

Similarly, the price of Jaiprakash Associates’ stock slipped over 66 per cent during the January-August 2015 period.

Other stocks that dragged the scheme’s performance over the last nine months include Apollo Tyres, Bata India and banking stocks — Allahabad Bank, Indian Bank, Punjab National Bank and YES Bank, to name a few.

The fund has upped its holding in select banks, such as YES Bank, Indian Bank, Bank of Baroda, Punjab National Bank and Federal Bank since January to take advantage of the impending rate cut by the RBI. Though the fund has increased exposure to specific stocks in the banking space, it has pruned its overall exposure to financials over the last nine months.

It has added pharma and IT stocks to its portfolio. The fund held 73 stocks in its portfolio as of August; this reduces concentration risk.

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