Despite the pandemic crisis, mid cap funds have generated significant gains in 2020, with the majority of schemes outpacing the index by a significant margin. In fact, recovery in the broader market after the pandemic-induced crash helped mid cap funds improve its performance compared to previous years (2018 and 2019).
We have observed a reduction in the degree of economic uncertainties after the lockdown restrictions were gradually lifted. Furthermore, RBI’s liquidity infusion and the government’s stimulus measures provided the much needed positive signals for the segment.
Though Mid cap funds may continue to do well in 2021 as the economy recovers further, be cautious of the risk involved. Advisably, invest in the mid cap segment only with a long term time frame preferably through mid cap schemes that focuses on fundamentally sound quality names while selecting stocks for the portfolio.
Invesco India Midcap Fund (IIMF) is a mid cap fund that invests in high growth-oriented quality stocks of mid-sized companies. The fund has registered superior outperformance in the recent corrective phase.
Graph 1: Growth of Rs 10,000 if invested in Invesco India Midcap Fund 5 years ago
Data as on January 05, 2021
(Source: ACE MF)
Though IIMF’s performance in the past was ordinary, it has shown a turnaround performance in the last 2 years. By generating a compounded annualised return of around 14.8% over the past 5 years, IIMF has outpaced its benchmark Nifty Midcap 100 – TRI index by a compound annual growth rate (CAGR) of around 4 percentage points. The index has appreciated at 10.9% CAGR. An investment of Rs 10,000 in the fund 5 years back would have been valued at Rs 19,973. A simultaneous investment in the benchmark would now be worth Rs 16,768 over the same time period. The fund has done well during recovery and bullish market phases in the past. Moreover, IIMF has performed extremely well in the recent midcap crash which signifies its ability to perform under pressure and the potential to deliver superior risk-adjusted returns for its investors in the long run.
Table: Invesco India Midcap Fund’s performance vis-a-vis category peers
|Scheme Name||Corpus (Cr.)||1 Year (%)||2 Year (%)||3 Year (%)||5 Year (%)||7 Year (%)||Std Dev||Sharpe|
|Axis Midcap Fund||7,878||31.29||22.06||15.40||16.93||22.04||19.20||0.144|
|Quant Mid Cap Fund||20||48.39||21.33||13.06||13.09||14.18||23.29||0.107|
|PGIM India Midcap Opp Fund||471||56.22||28.89||11.97||14.06||17.05||25.23||0.093|
|Invesco India Midcap Fund||1,142||29.34||17.88||8.98||14.82||21.52||22.56||0.073|
|DSP Midcap Fund||9,467||27.09||19.67||8.04||15.06||20.95||22.09||0.062|
|Kotak Emerging Equity Fund||8,654||25.79||18.99||7.38||15.25||22.88||24.50||0.059|
|Nippon India Growth Fund||7,843||26.36||17.27||6.24||13.28||17.62||24.49||0.048|
|Franklin India Prima Fund||7,026||21.14||13.44||5.03||12.71||19.84||23.34||0.032|
|HDFC Mid-Cap Opportunities Fund||24,215||26.09||13.93||4.32||13.28||19.81||24.84||0.025|
|SBI Magnum Midcap Fund||4,113||34.01||17.73||3.89||10.46||18.53||25.93||0.020|
|Nifty Midcap 100 – TRI||25.71||11.53||1.01||10.88||16.51||27.77||0.004|
Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on January 05, 2021
(Source: ACE MF)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.
With compounded annualised returns of around 29.3%, 17.9%, and 9%, respectively on a 1-year, 2-year and 3-year return basis, IIMF has managed to generate an alpha of 3.5 to 8 percentage points over the benchmark Nifty Midcap 100 – TRI.
The recent outperformance has helped it figure among the top quartile performers and has even scaled up its performance across time periods. On 5-year and 7-year return periods, the fund has managed to outpace the index by about 4 to 5 percentage points and has also outpaced the category average by a decent margin.
With a standard deviation of 22.56%, IIMF is prone to slightly lower volatility compared to the category average and the benchmark index. The fund has shown significant improvement in its risk-adjusted returns. Its Sharpe Ratio of 0.07 is much ahead of the benchmark and category average and indicates its ability to generate decent premium for the level of risk taken.
Investment strategy of Invesco India Midcap Fund
Classified under Mid Cap Funds, IIMF is mandated to invest at least 65% of its assets in equity & equity related instruments of mid cap companies. The fund house has positioned IIMF accordingly as a midcap fund that aims to invest in high growth oriented quality stocks of mid-sized companies. It usually holds 65% to 75% of its assets in the mid caps pool, with another 10% to 15% in small caps.
IIMF follows process based investment strategy and strictly adheres to its mandate and investment philosophy. While picking stocks, the fund managers look for stocks of companies with high growth potential. From the investment universe of over 300 midcap stocks, the fund has an active universe of around 135 stocks to choose from and holds a fairly diversified portfolio of around 30 to 50 stocks.
It follows the bottom-up and top-down approach to stock picking with no style bias. While the fund managers are in a constant hunt for high growth stocks available at reasonable valuations and look at timely entry and exit, moderate churning in IIMF’s portfolio cannot be ruled out. Invesco India Mutual Fund follows proprietary investment framework, used since the inception of the organization and uses stock categorization framework to break / bucket stocks into growth and value style of investment. The fund stays fully invested and takes no cash calls.
As on December 31, 2020, IIMF held an exposure of around 65.9% in mid caps, along with 9.4% in small caps and 20.1% in large caps. The remaining 4.6% of its assets were held in cash and debt.
Graph 2: Top portfolio holdings in Invesco India Midcap Fund
Holding in (%) as on December 31, 2021
(Source: ACE MF)
As on December 31, 2021, IIMF held a reasonably sized portfolio of 44 stocks. The top 10 stocks together constitute around 31.9% of its assets. The top holdings in the portfolio contain midcap names like L&T Technology Services, Coromandel International, Balkrishna Industries, Mphasis, Whirlpool of India, etc. The fund also has some large cap names like ICICI Bank and Gland Pharma in its top portfolio holdings.
Names like Apollo Hospitals Enterprise, Coromandel International, Ajanta Pharma, Mphasis, Balkrishna Industries, Muthoot Finance, and Tube Investments of India, among others contributed immensely to the fund’s performance in the last one year.
IIMF’s portfolio is currently diversified across a host of cyclical and defensive sectors. Financial Services form its top holding with an allocation of around 17.6%, followed by Engineering, Auto ancillaries, Pharma, Consumer Durables, and Infotech with an allocation in the range of 7-10% in each. The top 10 sectors together account for around 78% of its assets.
IIMF belongs to a fund house driven by strong investment systems and processes. The focus on fundamentally sound quality names in the mid cap domain has helped IIMF reward its investors even in depressed market conditions. IIMF has a superior track record of outperformance over its benchmark index and the category average over longer time periods. However being benchmark agnostic, its performance may at times be in contrast to the midcap index and also its peers that hold significant exposure to momentum driven mid-caps. This makes IIMF suitable for aggressive investors having a long term investment horizon.
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