For many investors who don’t wish to go all-out with small and mid-cap funds at the current juncture, there is an alternative: multi cap funds. This equity fund category is considered a relatively less-risky way to participate in the broader market rallies as they invest minimum 25 per cent allocation to each of large, mid, and small-cap stocks, thus automatically creating a diversified structure.

Multi cap funds are a relatively recent category. A few funds have been around for a long time with a multi-cap flavour, while most fund houses (such as Mirae, Canara Robeco, Tata, HSBC) have decided to start afresh with NFOs. Joining this list is WhiteOak Capital MF with WhiteOak Capital Multi Cap NFO, which is open till September 14. As a fund house, WhiteOak is a new one. Earlier this month, its first equity scheme completed 1 year. Should you invest in their latest offering? Here are details.

What’s different

Investment data show that no particular style performs consistently every year. For instance, value style, before making a comeback in 2021, underperformed in 2018, 2019 and 2020. Quality style worked well in 2018 and 2020 but did poorly in 2017 and 2019. Likewise, performances of sector and market capitalisation (i.e. largecap, midcap or smallcap) keep changing/rotating year on year.

Sticking to the fund house’s philosophy, WhiteOak Multi Cap will focus on stock selection—instead of taking skewed macro bets on sectors or on particular style. It will have a mix of pro-cyclical and counter-cyclical stocks.

However, there is a tint of value style in its portfolio construction approach as fund managers prefer to wait until value emerges.

Under normal circumstances, the fund plans to allocate 30-40 per cent to large-caps and 60-70 per cent to small and midcaps. So, after the 25 per cent minimum allocation to the 3 m-cap buckets, large-caps will get incremental 5-15 per cent, and small and midcaps will get incremental 10-20 per cent allocations. Compared to the existing multi-cap category, this m-cap distribution is slightly different as WhiteOak scheme appears to be overweight small and midcaps.

WhiteOak Capital Multi Cap Fund wants to maintain a “High Active Share” approach. A high active share is key to potential alpha generation. Active share is a measure of the percentage of security holdings in a manager’s portfolio that differs from the benchmark index.

Why multi cap

If the anticipated India growth narrative unfolds as projected in the coming years, a wide range of industries and various sectors will need to engage actively. A significant number of enterprises operating within sectors such as industrial goods, agriculture-related domains, mineral resources, telecommunications equipment and accessories, household goods, automotive components, logistics, and similar areas would primarily be situated within the mid and small-cap segments.

In particular, the midcap segment boasts numerous industry leaders, including the largest tyre manufacturer, the largest consumer durables company, the largest quick-service restaurant chain, and the largest hotel chain. Therefore, these sectors present substantial potential for investment returns..

Yet, the risks of investing in small and midcap stocks is well-known. Deeper drawdowns, weaker balance sheets and competition from much-larger players.

For investors who prefer to avoid direct involvement in lower market capitalisation segments or small-cap funds due to the elevated risk, the multi-cap category presents an attractive option. It’s worth noting that multi-cap funds (as a category) have been in existence for just over two years. This is a reason why we at bl.portfolio don’t rate them yet. But, Nippon India Multicap, Mahindra Manulife Multicap and Quant Active can be good choices for investors.

Our take

Investing in WhiteOak Capital Multi Cap Fund will require a leap of faith on two counts. One, the category is new; so even returns of older funds are not like for like and so cannot rely on historical multi-cap fund return experiences. Two, WhiteOak Capital MF is a promising but new mutual fund house. It has to build a track record of alpha generation. If you are comfortable on those two counts, go for it. If not, wait for the fund to deliver actual performance.

Take note
No style, theme bias
30-40% in largecaps and 60-70% in small & midcaps
Aspiring for high active share