The S&P BSE Midcap index scaled fresh peak of 24,705 today (September 09, 2021). In fact, mid-cap mutual funds have generated stellar returns amid the sharp rally in the last one and a half years.
Notably, mid-cap funds have a high long term growth potential even though they can be highly volatile in the short run. Mid-cap companies have the potential to become the large caps of tomorrow, which gives mid-cap funds a higher upside potential. This makes mid cap funds the preferred choice for long term financial goals such as retirement and children’s future.
However, it is advisable that investors adopt a cautious approach while investing in mid-cap funds, especially when markets are at all time high. Invest only in well-managed mid-cap funds that focus on picking quality stocks and risk management. Additionally, opt for the SIP route to mitigate the impact of market volatility and benefit from compounding of wealth over the long run.
Invesco India Mid-cap Fund is a less known but process-driven mid-cap fund that has delivered superior risk-adjusted returns in the last few years and stood strong beside its large-sized peers.
Graph 1: Growth of Rs 10,000 if invested in Invesco India Midcap Fund 5 years ago
Data as on September 07, 2021
(Source: ACE MF)
Invesco India Midcap Fund is a growth-oriented mid-cap fund that focuses on investing in stocks of high quality mid-sized companies. The fund has shown a turnaround performance in the last few years. During the 2018 midcap crash as well as the recent 2020 market crash, Invesco India Midcap Fund registered significant outperformance over its benchmark Nifty Midcap 100 – TRI. Meanwhile, it has managed to generate reasonable alpha during the bull market phases. In the last five years Invesco India Midcap Fund has appreciated at a compounded annualised growth rate of around 19.1%. The index has appreciated at 14.4% CAGR during this period. An investment of Rs 10,000 in the fund five years back would now amount to Rs 23,924. A simultaneous investment in the benchmark would now be worth Rs 19,599. This highlights Invesco India Midcap Fund’s ability to perform under pressure and the potential to deliver superior returns for investors in the long run.
Table: Invesco India Midcap Fund’s performance vis-á-vis category peers
|Scheme Name||Corpus (Cr.)||1 Year||2 Year||3 Year||5 Year||7 Year||Std Dev||Sharpe|
|PGIM India Midcap Opp Fund||2,383||97.49||63.95||30.58||21.59||19.16||25.43||0.27|
|Quant Mid Cap Fund||158||85.49||50.38||24.53||20.09||16.80||24.45||0.23|
|Axis Midcap Fund||13,834||67.53||40.96||24.15||21.96||19.27||18.99||0.25|
|Kotak Emerging Equity Fund||15,193||77.47||41.68||22.81||18.93||20.51||24.49||0.21|
|Tata Mid Cap Growth Fund||1,350||70.45||38.45||22.06||17.97||17.66||23.18||0.21|
|Nippon India Growth Fund||11,107||74.89||39.93||21.56||17.81||17.09||24.45||0.20|
|Invesco India Midcap Fund||1,861||64.45||38.52||20.33||19.05||18.51||22.34||0.19|
|DSP Midcap Fund||13,457||54.21||35.50||19.24||16.71||18.07||21.61||0.18|
|Franklin India Prima Fund||7,869||67.08||31.62||16.55||14.66||16.80||23.64||0.15|
|HDFC Mid-Cap Opportunities Fund||30,525||66.23||34.83||16.36||15.09||16.91||24.78||0.14|
|Nifty Midcap 100 – TRI||74.99||37.65||15.17||14.40||15.24||27.34||0.15|
Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on September 07, 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.
Invesco India Midcap Fund’s performance over the past few years is encouraging. The fund managed to generate a noticeable lead over the benchmark and the category average across most time periods, except in the last 1-year period where it has underperformed. Over the longer 3-year to 7-year period, Invesco India Midcap Fund’s outperformance over the benchmark has been in the range of 3-5 percentage point in compounded annual growth rate. Moreover, it has performed better than many of its peers in the category.
With a standard deviation of 22.34%, Invesco India Midcap Fund is prone to slightly lower volatility compared to the category average and the benchmark index. However, due to the superior performance in the past few years, the fund ranks high in terms of risk-adjusted returns. Its Sharpe Ratio of 0.19 is much ahead of the benchmark and the category average. This 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, Invesco India Midcap Fund has a mandate to invest at least 65% of its assets in equity & equity related instruments of mid cap companies. Accordingly, the fund house has positioned Invesco India Midcap Fund as a mid-cap 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 mid caps, with another 5% to 20% in small caps, and 10% to 20% in large caps. Invesco India Midcap Fund follows a process-based investment strategy and strictly adheres to its mandate and investment philosophy.
During the stock selection process, the fund managers look for companies with high growth potential. From the investment universe of over 300 mid-cap stocks, the fund has an active universe of around 135 stocks to choose from and holds a fairly diversified portfolio of around 40 to 50 stocks.
It follows 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 Invesco India Midcap Fund’s portfolio cannot be ruled out.
Invesco India Mutual Fund follows the proprietary investment framework and has used it since the inception of the organization. It also uses the stock categorization framework to break/bucket stocks into growth and value style of investment. The fund stays fully invested and takes no cash calls.
Graph 2: Top portfolio holdings in Invesco India Midcap Fund
Holding in (%) as on August 31, 2021
(Source: ACE MF)
Invesco India Midcap Fund holds a well-diversified portfolio of stocks spread across sectors. As on August 31, 2021, Invesco India Midcap Fund held 49 stocks in its portfolio, with top 10 stocks together constituting around 32.1% of its assets. The top holdings in the portfolio contain popular midcap names like Mphasis, Bharat Electronics, Endurance Technologies, Persistent Systems, Gujarat Gas, Balkrishna Industries, Minda Industries, among others.
Names like L&T Technology Services, Gujarat Gas, Balkrishna Industries, ICICI Bank, Minda Industries, Bharat Electronics, Vinati Organics, and Voltas, contributed the most to the fund’s performance in the last one year. The fund booked profit in stocks like MRF, Honeywell Automation India, Bata India, Whirlpool of India, among others. In the last one year, Invesco India Midcap Fund’s portfolio turnover has increased to around 90% from around 65% signifying moderate churning of the portfolio.
Invesco India Midcap Fund’s portfolio is currently diversified across host of cyclical, sensitive, and defensive sectors. Financial Services form its top holding with an allocation of around 14.7%, closely followed by Auto Ancillaries (11.3%), and Engineering (12.8%). Infotech, Pharma, Oil & Gas, Consumer Durables, Chemicals, and Metals are among the other core sectors with an allocation in the range of 4-10% in each. The top 10 sectors collectively account for around 77.6% of its assets.
Belonging to a fund house driven by strong investment systems and processes, Invesco India Midcap Fund has put up a decent show during tough market conditions and managed to limit the downside risk for its investors. Moreover, it has also done well during market recoveries.
The focus on fundamentally sound quality names in the mid-cap domain and astute stock picking has helped Invesco India Midcap Fund reward its investors across market conditions. With a small corpus size of around Rs 1,900 crore and exposure to highly liquid stocks, Invesco India Midcap Fund has the advantage of quick liquidation of the portfolio in case of extreme conditions.
Invesco India Midcap Fund is suitable for aggressive investors looking to invest in quality mid-cap stocks over a long term horizon of at least 5-7 years.
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