Mid Cap Funds tend to be highly volatile and can suffer huge losses during uncertain market conditions. However, they have the potential to generate attractive returns in the long run. So, instead of avoiding Mid Cap Funds during market corrections, you can take advantage of attractive valuations in the segment to hike your exposure.
When investing in Mid Cap Funds, you should be aware of the underlying risk and preferably invest via the SIP route. Click here to check out PersonalFN’s list of the best Mid Cap Funds to invest in 2023.
HDFC Mid-Cap Opportunities Fund is the most popular scheme in the Mid Cap Fund segment that has bounced back strongly after witnessing a dull phase and once again proved its superiority over longer time periods.
Graph 1: Growth of Rs 10,000 if invested in HDFC Mid-Cap Opportunities Fund 5 years ago
Past performance is not an indicator of future returns
Data as on March 21, 2023
(Source: ACE MF)
Launched in June 2007, HDFC Mid-Cap Opportunities Fund is the most popular scheme in the Mid Cap Fund category. Its popularity clearly reflects in its huge corpus size of over Rs 35,010 crore, which is unusual for funds that invest mainly in mid and small-sized companies. Despite having a gigantic asset size, HDFC Mid-Cap Opportunities Fund has shown no restriction or capacity issue. The fund has a proven track record of generating above-average returns across market conditions and usually makes it to the list of top-quartile performers over longer periods, thus making it a prominent contender in the Mid Cap Fund category. The fund has done well under the supervision of Mr Chirag Setalvad, who is known for his high conviction mid-cap and small-cap bets. However, HDFC Mid-Cap Opportunities Fund witnessed a prolonged phase of muted growth between 2016 and early 2020 wherein it occasionally trailed the benchmark and its prominent peers. Nonetheless, HDFC Mid-Cap Opportunities Fund has bounced back in the last couple of years to stand strong among its peers. Over the past 5 years, HDFC Mid-Cap Opportunities Fund has delivered returns at a CAGR of around 13.1%, which is slightly higher than the 12.4% delivered by its benchmark Nifty Midcap 150 – TRI index. An investment of Rs 10,000 in HDFC Mid-Cap Opportunities Fund would have now appreciated to Rs 18,537, compared to a valuation of Rs 17,912 for a simultaneous investment in its benchmark.
Table: HDFC Mid-Cap Opportunities 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 |
| Quant Mid Cap Fund | 1,551 | 8.79 | 24.68 | 45.03 | 19.84 | 17.38 | 23.14 | 0.38 |
| PGIM India Midcap Opp Fund | 7,708 | 1.80 | 17.76 | 42.64 | 18.86 | 18.55 | 23.08 | 0.36 |
| SBI Magnum Midcap Fund | 8,733 | 6.43 | 17.29 | 37.00 | 13.44 | 14.91 | 23.13 | 0.30 |
| Edelweiss Mid Cap Fund | 2,531 | 4.86 | 15.29 | 35.48 | 13.96 | 17.28 | 23.02 | 0.29 |
| Mirae Asset Midcap Fund | 8,754 | 1.47 | 14.21 | 34.86 | — | — | 23.12 | 0.28 |
| HDFC Mid-Cap Opportunities Fund | 35,010 | 11.91 | 17.61 | 34.17 | 13.13 | 16.69 | 22.83 | 0.28 |
| Kotak Emerging Equity Fund | 23,963 | 6.62 | 15.92 | 33.97 | 15.19 | 18.38 | 22.30 | 0.28 |
| Motilal Oswal Midcap Fund | 3,769 | 14.55 | 24.70 | 33.93 | 16.39 | 16.12 | 23.71 | 0.27 |
| ICICI Pru Midcap Fund | 3,493 | 3.86 | 12.66 | 32.90 | 11.05 | 14.60 | 23.83 | 0.26 |
| Nippon India Growth Fund | 13,410 | 5.62 | 16.03 | 32.39 | 14.51 | 16.91 | 23.19 | 0.26 |
| Nifty Midcap 150 – TRI | 4.96 | 13.95 | 34.26 | 12.36 | 16.52 | 24.18 | 0.26 |
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as of March 21, 2023
(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.
HDFC Mid-Cap Opportunities Fund has a superior track record of above-average performance and has distinctly outperformed the benchmark and many of its peers over various time periods in the past. After witnessing a rough phase between 2016 and early 2020, during which it struggled to outpace the benchmark, HDFC Mid-Cap Opportunities Fund has bounced back strongly with superior gains in the last couple of years. In the last 1-year and 2-year periods, HDFC Mid-Cap Opportunities Fund has generated a lead of around 4-7 percentage points over the benchmark and the category average. The recent superior growth has improved its long-term performance numbers as well. Over the longer 5-year and 7-year periods, the fund has generated returns nearly on par with the benchmark and has outpaced many of its peers.
The fund has also been reasonable when it comes to managing volatility. Its standard deviation is lower than that of its benchmark and many of its category peers. In terms of risk-adjusted returns (as denoted by the Sharpe ratio), HDFC Mid-Cap Opportunities Fund has outperformed its benchmark and the category average by a significant margin.
Investment strategy of HDFC Mid-Cap Opportunities Fund
Categorised under midcap funds, HDFC Mid-Cap Opportunities Fund is mandated to invest at least 65% of its assets in equity & equity-related instruments of mid-sized companies, defined as those ranking 101st to 250th on full market capitalisation basis. The non-midcap exposure in the portfolio can go up to 35% of its assets. Accordingly, HDFC Mid-Cap Opportunities Fund invests predominantly in stocks of mid-sized companies, which have reasonable growth prospects, sound financial strength, sustainable business models, and are available at acceptable valuations that offer potential for capital appreciation. It follows the bottom-up approach to identify high-quality businesses for the long term, meaning the fund focuses on the strengths of company fundamentals rather macroeconomic indicators.
HDFC Mid-Cap Opportunities Fund holds a well-diversified equity portfolio of around 60-70 stocks and prefers to stay invested in each of its holdings with a long-term view. Following a buy-and-hold investment strategy, the fund manager refrains from unnecessary churning in the portfolio and avoids chasing momentum. Moreover, the fund is cautious in its approach, which helps it to perform well even during uncertain market phases. HDFC Mid-Cap Opportunities Fund usually remains fully invested across market cycles, taking very limited cash calls.
Graph 2: Top portfolio holdings in HDFC Mid-Cap Opportunities Fund
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Holding in (%) as of February 28, 2023
(Source: ACE MF)
Being a large-sized Mid Cap Fund, HDFC Mid-Cap Opportunities Fund usually holds a large portfolio of 60-70 stocks and has limited the exposure to a single stock to well within the 5% mark. As of February 28, 2023, HDFC Mid-Cap Opportunities Fund held 63 stocks in its portfolio, with the top 10 stocks accounting for 33.7% of its assets. Mid-cap names like The Indian Hotels Company, Max Healthcare Institute, Sundram Fasteners, Tata Communications, and Apollo Tyres currently appear among its top portfolio holdings. HDFC Mid-Cap Opportunities Fund has a low turnover ratio of around 10-20%, which reflects the strong long-term conviction the fund manager has when he picks the stocks for the portfolio and holds them for the long term.
HDFC Mid-Cap Opportunities Fund’s prominent bets on Bharat Electronics, The Indian Hotels Company, Tube Investments of India, Cholamandalam Investment & Finance Company, Gujarat Fluorochemicals, and Persistent Systems have turned out to be rewarding for the fund in the last 2 years. The fund also benefitted from its holdings in Solar Industries, SKF India, Sundaram Fasteners, Balkrishna Industries, Schaeffler India, Redington, and Jindal Steel & Power, among others.
HDFC Mid-Cap Opportunities Fund’s portfolio is dominated by Financial & Engineering stocks that cumulatively form 38.2% of its assets. The fund also holds substantial exposure to Auto Ancillaries, Infotech, Consumer Durables, Hotels, Chemicals, Pharma, Healthcare, and Telecom having allocation in the range of 3-9%. The top 5 sectors in the fund’s portfolio together account for around 55.1% of its assets. HDFC Mid-Cap Opportunities Fund’s portfolio is fairly diversified across Cyclicals, Defensives and Sensitive sectors.
Suitability
HDFC Mid-Cap Opportunities Fund’s performance over longer time periods is commendable wherein it has generated reasonable growth for its investors. The fund has delivered noteworthy returns across various market phases, thereby rewarding long-term investors for their patience. It has the ability to deliver stable yet strong returns across market conditions.
The focus on identifying long term-growth opportunities in fundamentally sound mid-sized stocks enables the fund manager to invest in stocks with high intrinsic value allowing the fund more time to realise the growth potential of its investments. Moreover, it avoids momentum-driven bets which helps it reduce the risk while rewarding its investors adequately in the long run.
Having higher allocation to mid-caps and small-caps HDFC Mid-Cap Opportunities Fund is suitable only for investors having an appetite for higher risk and willing to stay invested for a long-term period of at least 5-7 years.
This article first appeared on PersonalFN here
