Return Tracker. Mixed performance from multi-cap funds

When you want to play the markets with a blend of stocks from across market capitalisations, multi-cap funds are a good option. By shuffling the proportion of mid- and large-cap stocks in their portfolios, multi-cap funds cater to investors with moderate to high risk appetites. We analysed multi-cap funds that had a corpus of over ₹1,000 crore and examined their performance over one- and three-year periods.

Of the 27 schemes under the category that satisfy the above criteria, only half of them delivered better returns than the broad-based benchmark, BSE 500, over both time frames. The best of funds managed to deliver 10-16 per cent annual returns over the past three years.

Large-cap push

Interestingly, though mid-caps had an extended rally during 2014-17, many multi-cap funds that had invested mostly in large-caps have come out trumps over the past couple of years.

For example, L&T India Value, Tata Equity P/E and SBI Magnum Multiplier invested 75-85 per cent of their portfolio in large-cap stocks. Yet, these have been able to beat the BSE 500 and even the BSE 200 by 3-4 percentage points.

Two funds with over 90 per cent investment in large cap stocks, Motilal Oswal Most Focused Multicap 35 and Axis Focused 25, were among the best.

What worked for these funds was increasing exposure to or shifting to ever-reliant private sector banks such as HDFC Bank, Kotak Mahindra Bank and IndusInd Bank. Many outperformers also bet on sectors such as software, which has rallied well over the past one year, and speciality chemicals.

Construction is another sector that has delivered well for many multi-cap funds, as road players have rallied significantly because of consistent order wins.

Parag Parikh Long Term Equity did better than the BSE 500. But despite having more than half its portfolio in mid-cap stocks, the fund was not a chartbuster despite the massive mid-cap rally. It has delivered lower returns than many funds that were focused on large-caps over the last three years.

The laggards

While one half of the multi-cap universe outperformed, the rest lagged behind at least in one of the last one- and three-year periods. ICICI Pru Value Discovery, UTI Opportunities, Tata Equity Opportunities and Franklin India High Growth Companies are some schemes whose returns have lagged that of the BSE 500.

Betting on sectors such as pharma and automobiles, as well as on some public sector banks dragged their performance.

For example, many of these laggards bet on stocks such as Sun Pharma and Tata Motors, which have been underperforming and correcting for the past year or so.

While multi-cap funds need to be judged over a five-seven-year time-frame, given that the broader markets rallied in the last three years, the performance of funds in this shorter period is a good indicator of how funds participate in such run-ups.

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