After a significant correction in the value of mid cap stocks over the last two years, investors are looking to re-enter the segment as it has high growth potential. The valuations in the segment look attractive which makes it a good long term bet provided that you invest in quality stocks. However, given the slowdown in the economy there is uncertainty regarding its performance in short to medium term.
Thus, in the current scenario it makes sense to diversify across market caps to reap the maximum benefit of your equity investment. Since large caps are known for their stability, investing in a mix of large and mid-cap companies through a large and mid-cap mutual fund can offer you the benefit of high growth with stability.
Sundaram Large and Midcap Fund is one such fund that aims for capital appreciation by investing predominantly in equity and equity related instruments of large and mid-caps.
Although the fund was launched more than a decade ago in February 2007, it has come under the spotlight only recently due to significant improvement in its performance in the last couple of years.
Graph 1: Growth of Rs 10,000 if invested in Sundaram Large & Midcap Fund 5 years ago
If you had invested Rs 10,000 five years back on December 03, 2014, it would have grown to Rs 17,291 as on December 03, 2019 at CAGR of 11.6%. On the other hand a simultaneous investment of Rs 10,000 in its benchmark Nifty Midcap 250 – TRI would now be worth Rs 15,506, a CAGR of 9.2%. SLMCF’s performance was ordinary initially where it generated returns nearly in line with the benchmark. But in the last couple of years the fund witnessed a turnaround in performance and has since then generated decent lead over the index.
Graph 2: Sundaram Large & Midcap Fund’s year-on-year performance
Launched in February 2007, SLMCF has a track record of over a decade. The year-on-year performance comparison of SLMCF relative to its benchmark Nifty Large Midcap 250 – TRI shows that the fund outperformed the benchmark in 3 out of last 10 calendar years and delivered returns nearly in line with the benchmark in two other. In rest of the calendar years the fund has lagged the index. As we can see in the chart, the fund’s performance has been poor in most of the years. However, the fund stands strong in the on-going correction phase which began in CY 2018, outperforming the benchmark and many category peers with a considerable margin.
Table: Sundaram Large & Midcap Fund’s performance vis-a-vis category peers
|Scheme Name||Corpus (Cr.)||1 Year (%)||2 Year (%)||3 Year (%)||5 Year (%)||Std Dev||Sharpe|
|Mirae Asset Emerging Bluechip||8,868||6.10||9.93||17.51||22.71||14.61||0.19|
|Invesco India Growth Opp Fund||1,991||3.69||11.54||15.15||15.56||12.74||0.21|
|LIC MF Large & Midcap Fund||569||1.55||7.87||15.04||0.00||13.68||0.15|
|Sundaram Large and Mid Cap Fund||871||4.12||10.52||14.96||15.47||13.64||0.18|
|Canara Rob Emerg Equities Fund||5,235||-0.90||7.31||14.80||20.84||15.39||0.13|
|Principal Emerging Bluechip Fund||2,260||-4.25||5.20||13.58||18.45||15.36||0.10|
|Essel Large & Midcap Fund||106||3.76||6.63||13.40||0.00||14.18||0.11|
|Kotak Equity Opp Fund||2,732||3.88||6.96||13.25||15.20||12.90||0.13|
|DSP Equity Opportunities Fund||5,631||1.11||6.09||12.79||14.90||13.96||0.11|
|IDFC Core Equity Fund||2,886||-1.58||5.80||12.58||12.80||13.55||0.09|
|Edelweiss Large & Mid Cap Fund||481||2.22||9.39||12.00||13.08||12.61||0.16|
|Tata Large & Mid Cap Fund||1,507||5.91||7.96||11.34||13.91||12.48||0.13|
|SBI Large & Midcap Fund||2,753||2.00||7.71||11.26||14.20||13.13||0.11|
|ICICI Pru Large & Mid Cap Fund||3,714||0.31||4.55||10.83||10.81||12.49||0.06|
|L&T Large and Midcap Fund||1,381||-5.51||3.20||10.24||12.08||14.39||0.07|
|Aditya Birla SL Equity Advantage Fund||5,111||-4.00||2.13||9.90||14.51||15.51||0.06|
|Quant Large & Mid Cap Fund||4||-2.99||1.71||9.28||17.07||12.96||0.03|
|HDFC Growth Opp Fund||1,352||0.83||4.88||9.14||7.46||13.59||0.07|
|Franklin India Equity Advantage Fund||2,619||-1.39||4.63||8.49||12.07||12.61||0.04|
|UTI Core Equity Fund||866||-3.70||3.27||8.27||9.98||13.30||0.02|
|BOI AXA Large & Mid Cap Equity Fund||174||-7.82||2.66||8.00||9.05||16.22||0.05|
|Nippon India Vision Fund||2,846||-4.94||0.19||6.98||9.89||16.60||0.02|
|Nifty LargeMidcap 250 Index – TRI||-1.00||6.92||12.50||13.64||14.21||0.11|
Data as on December 03, 2019
(Source: ACE MF)
SLMCF outperformed the benchmark and category average across rolling periods with a noticeable margin. However, the margin of outperformance was lower during the 3-year and 5-year rolling period. Its performance during the 1-year rolling period is remarkable because of the superior returns generated even as many of its peers underperformed.
The fund stood among the category toppers across time periods. Funds like Mirae Asset Emerging Bluechip Fund, Invesco India Growth Opportunities Fund, LIC MF Large & Midcap Fund and Canara Robeco Emerging Equities Fund were the other top performers in the category.
In terms of risk-return profile, the fund’s volatility has been lower than the benchmark and the category average. Nonetheless, it managed to reward investors with superior risk-adjusted returns.
Investment strategy of Sundaram Large & Midcap Fund
SLMCF invests in a portfolio of predominantly large and mid-cap stocks with minimum 35% in each category while maintaining a large cap bias. The fund seeks to identify attractive opportunities and take concentrated exposures. It lays emphasis on selecting quality stocks across sectors and market cap. It selects stocks through a combination of top down and bottom up approach and with a view to stay invested for 3-5 years. The fund has the flexibility to invest up to 30% of its assets in cash, debt and money market instruments.
Graph 3: Portfolio allocation and market capitalisation trend in Sundaram Large & Midcap Fund
Categorised as large & mid cap fund, SLMCF is mandated to hold at least 35% each in equity and equity related instruments of large and mid caps. The fund maintains a large cap bias and accordingly invests 50-60% of assets in the segment while it allocates 35-50% in mid caps. On the other hand, it has completely avoided any exposure to the high-risk small caps. The balance of the fund’s holdings is maintained in the form of cash and equivalents. As on October 31, 2019, the fund held 56.4% of its assets in large caps, 39.4% in mid-caps and the rest was held in cash & equivalents.
Graph 4: Top portfolio holdings in Sundaram Large & Midcap Fund
SLMCF held a compact portfolio of 35 stocks spread across various sectors, as on October 31, 2019. The top 10 stocks account for 42.1% of its assets. Reliance Industries tops the list with an allocation of 6.3%, followed by ICICI Bank (5.5%) and Larsen & Toubro (4.5%). Rest of the stocks in top 10 holding have allocation in the range of 3-4%.
The fund invests in a mix of cyclical and defensive sectors. In terms of sectors, the fund has the highest exposure to Banks at 15.9% with in another 13.7% in Finance. Consumption, Engineering and Consumer Durables follow closely behind. Petroleum Products, Cement, Retail, Infotech and Auto are the other prominent sectors in the portfolio.
Among the stocks in the portfolio, Berger Paints India contributed the most to the fund’s gain with a weighted return of 2.1%. The fund also benefited from its holding in Baja Finance, ICICI Bank, SBI Life Insurance Company, ICICI Lombard General Insurance Reliance Industries and The Ramco Cements.
Meanwhile, it lost some of its gain from its holding in Cummins India, Quess Corp, TVS Motor Company and Tata Chemicals.
Suitability of Sundaram Large & Midcap Fund
SLMCF manages a well-diversified portfolio that is not concentrated to a few set of stocks, though it has taken few concentrated sectoral bets. It has showcased impressive performance with superior risk-adjusted returns in the recent years. However, it remains to be seen if it can sustain such performance in the future. The fund invests in a mix of large and mid-caps and has avoided investing in small caps. This makes SLMCF suitable for investors with high risk appetite and investment horizon of five years or more.
Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
This article first appeared on PersonalFN here