Welcome to PersonalFN’s weekly analysis on diversified equity mutual funds! In this issue, we have analysed HDFC Mid-Cap Opportunities Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

HDFC Mid-Cap Opportunities Fund is a Mid Cap Mutual Fund that has recorded a strong revival, thereby becoming the leading fund within the category and effectively reaffirming its position as a top-quartile scheme over longer time periods.

What is the growth of Rs 10,000 invested in HDFC Mid-Cap Opportunities Fund five years ago?

Graph 1

Past performance is not an indicator of future returns
Data as of September 13, 2023 

Launched in June 2007, HDFC Mid-Cap Opportunities Fund is the most popular scheme in the Mid Cap Mutual Fund category. The fund has a substantial corpus size of over Rs 47,236 crore, which is a noteworthy milestone, particularly for funds focusing on mid and small-sized companies. HDFC Mid-Cap Opportunities Fund has firmly established its position in the Mid Cap Fund category by delivering above-average returns across diverse market conditions, consistently positioning itself in the top-quartile performers over extended periods. The fund has done well and flourished under the supervision of Mr Chirag Setalvad, who is known for his strong convictions in mid-cap and small-cap stocks. Notably, the fund manager resists following market momentum and holds each of his high-conviction stocks for the long term. Over the past 5 years, HDFC Mid-Cap Opportunities Fund has delivered returns at a CAGR of around 19.1%, which is slightly higher than the 18.5% delivered by its benchmark Nifty Midcap 150 – TRI index. An investment of Rs 10,000 in HDFC Mid-Cap Opportunities Fund five years back would have now appreciated to Rs 24,612. Though a period of prolonged subdued growth between 2016 and early 2020 presented a challenge for the fund, it has bounced back strongly in recent years to restore its position among its peers.

How has HDFC Mid-Cap Opportunities Fund performed in the past?

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
Quant Mid Cap Fund 2,789 22.94 23.77 41.43 24.89 21.50 18.51 0.47
Motilal Oswal Midcap Fund 5,735 22.04 25.93 39.05 20.60 17.19 16.92 0.49
SBI Magnum Midcap Fund 12,555 16.56 17.86 36.42 20.15 15.69 16.36 0.46
HDFC Mid-Cap Opportunities Fund 47,236 29.16 21.28 35.53 19.11 17.50 16.09 0.47
Nippon India Growth Fund 18,343 24.72 17.78 34.96 20.85 18.45 16.47 0.44
Mirae Asset Midcap Fund 11,919 20.39 14.91 34.83 16.54 0.44
Mahindra Manulife Mid Cap Fund 1,476 25.26 17.80 34.28 20.37 17.14 0.42
Edelweiss Mid Cap Fund 3,666 16.75 14.78 33.65 19.94 18.39 16.79 0.43
PGIM India Midcap Opp Fund 9,393 6.63 9.44 33.59 22.63 18.57 16.57 0.44
Kotak Emerging Equity Fund 33,091 16.97 15.08 33.54 20.31 18.21 15.36 0.45
Nifty Midcap 150 – TRI 23.81 17.57 34.03 18.47 18.02 17.60 0.41

The securities quoted are for illustration only and are not recommendatory.
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 September 13, 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 before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

HDFC Mid-Cap Opportunities Fund boasts an impressive track record of consistently achieving above-average performance, clearly surpassing both its benchmark and many of its peers across various time periods in the past. After enduring a challenging phase between 2016 and early 2020, during which it struggled to surpass the benchmark, HDFC Mid-Cap Opportunities Fund has demonstrated a strong resurgence, generating significant gains in the past few years.

In the last 1-year and 2-year periods, HDFC Mid-Cap Opportunities Fund has generated a lead of around 4-5 percentage points over the benchmark and 7-10 percentage points over 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 (16.09%, annualised) is lower than that of its benchmark (17.60%, annualised) and is reasonable when compared to the category average. In terms of risk-adjusted returns (as denoted by the Sharpe ratio), HDFC Mid-Cap Opportunities Fund has distinctly outperformed its benchmark and the category average by a significant margin.

Watch this Video to Understand how Mid cap Funds Have Fared on 10-Year SIP Returns.


What is the 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 stock 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 than 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 avoids unnecessary portfolio changes and refrains from 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 minimal cash calls.

What are the top portfolio holdings in HDFC Mid-Cap Opportunities Fund?

Graph 2Graph 2

Holding in (%) as of July 31, 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 single stock to well within the 5% mark. As of August 31, 2023, HDFC Mid-Cap Opportunities Fund held 63 stocks in its portfolio, with the top 10 stocks accounting for 30.2% of its assets. Mid-cap names like The Indian Hotels Company, Tata Communications, Max Healthcare Institute, Apollo Tyres, and Cholamandalam Investment & Finance Company, currently figure 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 Cholamandalam Investment & Finance Company, Bharat Electronics, The Indian Hotels Company, and Sundram Fasteners have turned out to be rewarding for the fund in the last 2 years. The fund has also benefitted from its holdings in Supreme Industries, Apollo Tyres, Solar Industries India, Max Healthcare Institute, Persistent Systems, SKF India, Jindal Steel & Power, among others.

As of August 31, 2023, HDFC Mid-Cap Opportunities Fund’s portfolio was dominated by Financial and Engineering stocks that cumulatively formed around 37.8% of its assets. The fund also held substantial exposure to Auto Ancillaries, Infotech, Pharma, and Hotels, having allocation in the range of 4-8%. The top 5 sectors in the fund’s portfolio together accounted for around 53% of its assets. HMOF’s portfolio is fairly diversified across Cyclicals, Defensives, and Sensitive sectors.

Is HDFC Mid-Cap Opportunities Fund suitable for my investment goals and risk tolerance?

With an emphasis on identifying long-term growth prospects in fundamentally sound mid-sized stocks, the fund manager usually maintains a well-diversified portfolio of high-conviction stocks available at reasonable valuations. This strategy allows the fund a prolonged period to harness the growth potential of its investments. Moreover, it steers clear of chasing market trends which helps it reduce the risk while rewarding its investors adequately in the long run.

HDFC Mid-Cap Opportunities Fund enjoys the expertise of a steadfast fund management team, with Mr Chirag Setalvad at the helm for more than a decade now. Under his management, the scheme has generated a respectable alpha over the benchmark. His adherence to picking good quality and high-growth-oriented mid-sized companies available at acceptable valuations may help the fund sail through high market volatility without compromising on growth.

Given its larger allocation to mid-caps and small-caps HDFC Mid-Cap Opportunities Fund is suitable only for investors with a high risk appetite and willing to stay invested for a long-term period of at least 5-7 years.

[Read: 5 Best Mid Cap Mutual Funds to Invest in 2023 – Top Performing Mid Cap Mutual Funds in India]

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

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