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Small and mid-cap funds managed to limit losses during the recent decline. We take a look at the performance of these funds over a two-year period — when they came a full circle from a rallying market to a falling one.
Mid-cap funds, this time around, contained declines better than during the previous market correction (January 2008-March 2009).
Most of these funds managed to beat the CNX Mid-cap and BSE Mid-cap indices. Thirty-one funds out of the total thirty-six funds which have a two-year track record outperformed the CNX Mid-cap index (which lost 4.9 per cent). The return ranged from an annualised loss of 14.3 per cent to a gain of 14.4 per cent annually with median returns being 0.6 per cent.
On an average, mid-cap funds lost 32 per cent between the highs in November 2010 and the lows in December as against the28 per cent loss by the CNX S&P Nifty Index. Though the mid-cap category did underperform the broad index, Nifty, the return gap has narrowed. They underperformed the Nifty Indexby as high as 11 percentage points during the previous correction.
Top performers
SBI Magnum SFU-Emerging Businesses Fund and HDFC Mid-Cap Opportunities Fund were the toppers in the two-year category, while HSBC Progressive Themes, HSBC Midcap Equity and HSBC Small Cap languished at the bottom.
SBI Magnum Emerging Business and IDFC Premier Equity (another top performing fund) bet on consumer stocks and proxy consumer plays such as Page Industries to outperform the index. SBI Magnum Emerging Business saw a surge in its asset base as a result of superior performance.
HDFC Mid-cap Opportunities' focus on off-beat stocks such as Solar Industries and capital goods selection such as Carborundum Universal allowed it to outperform its benchmark.
BNP Paribas Mid-cap fund, which was among the laggards during the decline up to March 2009, managed to perform better this time around. Like its peers, BNP Paribas Mid-cap also bet on outperformers in the consumer and auto ancillary space to emerge among the top performing funds.
HSBC Small-cap lost heavily during the correction and also witnessed high redemptions from October 2010. Such redemptions may also have constrained it from performing well.
Unlike the large-cap funds, only a handful of funds in the mid-cap space have consistently remained at the top over the last five years. Their ranking keeps shifting. This suggests that these funds need active monitoring to weed out underperformers.
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