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HDFC Midcap Opportunities: Showing Excellence on all Fronts
Sun, Sep 14, 2014
Source : Citrus Interactive

HDFC Midcap Opportunities Fund is an open-end diversified equity fund, which aims to achieve long term capital appreciation by investing predominantly in equity & equity related instruments of Small and Mid Cap companies. The fund was launched on June, 2007 and currently has quarterly average assets under management of Rs 6,861.74 crores as on August 31, 2014 and is benchmarked against the CNX Midcap Index.

Fund Performance

HDFC Midcap Opportunities Fund has an excellent performance track record on consistently outperforming its benchmark index and the equity diversified category average across all time frames. The fund has consistently been in the top quartile in terms of performance as against other funds in the equity diversified space. Since its inception the fund has significantly outperformed the CNX Midcap index.

 

YTD

1-Year

3-Years

5-Years

Since Inception

HDFC Midcap Opportunities

50.34

94.82

25.88

24.56

16.92

CNX Midcap

37.7

68.66

15.08

12.7

10.25

Category Average

38.2

68.45

20.19

14.99

NA

Rank

25/144

21/144

20/137

2/121

NA

  Figures are in % as on Aug 31, 2014; Returns above 1-year in CAGR terms

The fund has consistently outperformed its category average by a huge margin in each of the last 5 calendar years. Also the fund has performed better than the benchmark in the last four out of five years, the only exception being in 2009.

 

2009

2010

2011

2012

2013

HDFC Midcap Opportunities

94.4

32.13

-18.31

39.62

9.64

CNX Midcap

98.97

19.16

-31

39.16

-5.1

Category Average

87.69

19.18

-24.09

34.4

4.73

Rank

45/120

4/128

16/135

38/139

17/143

  Figures are in %

 

Portfolio Characteristics

Sector Concentration:  The fund’s concentration in the top 3, 5 sectors and the top 10 sectors is significantly lower than the category median highlighting lesser risk of the fund.

 

 

Top 3

Top 5

Top 10

HDFC Midcap Opportunities

27.94

38.91

57.58

Category Median

36.53

48.6

67.86

 

Company Concentration: The concentration of funds in top 3, 5 and 10 companies in its portfolio is also significantly lower than the category median.

 

 

Top 3

Top 5

Top 10

HDFC Midcap Opportunities

8.02

12.68

23.77

Category Median

17.02

25.37

42.93

 

Lesser Sector & Company Concentration signifies that the low risk profile of the fund.

Risk Measures: In terms of measures of risk such as standard deviation & beta (average of the last three years) the fund has a much lower level of risk compared to the category median. This is quite commendable given its focus on mid cap securities which are relatively more volatile.

 

Standard Deviation

Beta

HDFC Midcap Opportunities

0.8361

0.611

Category Median

0.9544

0.8255

 

Risk adjusted Returns: The fund’s risk adjusted performance as measured by Treynor ratio and Sharpe ratio (measured as average of last three years) is much superior to the category median.

 

Sharpe

Treynor

HDFC Midcap Opportunities

0.0796

0.1137

Category Median

0.0515

0.0562

 

Process

HDFC Midcap Opportunities Fund is an open-end diversified equity fund, which aims to achieve long term capital appreciation by investing predominantly in equity & equity related instruments of Small and Mid Cap companies. At least 75% of the funds will be invested in equities & equity related instruments of small & midcap companies and a maximum of 25% can be invested in equity & equity related instruments other than mid and small cap companies or Debt/Money Market instruments. The fund investments in midcap companies will range between 75% - 100% while the range of investments in small cap companies will be in a range of 0-25%. The fund may also seek in investment opportunities in foreign securities including ADRs / GDRs / Foreign equity and debt securities upto a maximum of 25% of the net assets of the Scheme.

Small and Mid-Cap companies offer higher return potential than large cap companies but it also carry higher risk than large cap companies, particularly over the short and medium term. Therefore to reduce risk the fund maintains a well diversified portfolio. The fund’s expense ratio is 2.13% which much lower with category average of 2.54%. Like most equity funds the fund has an exit load of 1 per cent on or before one year from the date of investment. Minimum investment in the fund is Rs 5,000.

Portfolio

Number of equity holdings: As of July 31, 2014 the fund holds 65 stocks in its portfolio which is significantly higher than the category median of 47 for the diversified equity category. Its average portfolio holdings over the last 5 years have been fairly diversified around 60 stocks.

The top 5 holdings accounts for 12.68%, comprising Aurobindo Pharma Ltd, Mindtree Ltd, Supreme Industries Ltd, Ipca Laboratories Ltd & Torrent Pharmaceuticals Ltd. The fund’s exposure to cyclical stocks currently is 67.23% followed by defensive with 14.82% & services with 8.6%. Currently the fund has cash holdings of 5.34%.

The top 5 sectors in the portfolio had an allocation of 38.91%. These include Bank, Pharmaceuticals, Industrial product, Consumer durables and Software. HDFC Midcap Opportunities Fund’s exposure to individual stocks and sectors is not concentrated, which further reduces the risks generally associated with mid-cap funds.


Fund Manager

Chirag Setalvad (40 years) has a rich experience of over 17 years out of which 14 years are in the areas of fund management and research, while 3 year is in investment banking. He has been associated with HDFC AMC between 2000 to 2004 and then from March 2007 till date. In between he has worked with New Vernon Advisory Services Ltd. He is a B. Sc in Business Administration from University of North Carolina. Other funds managed/co managed by him are HDFC Capital Builder Fund, HDFC Balanced Fund, HDFC Children’s Gift Fund, HDFC Long Term Advantage and HDFC Multiple Yield Fund – Plan 2005 (equity assets).

Rakesh Vyas (32 years) has been working as a Senior Equity Analyst in HDFC AMC since October 2009 and is now being re-designated as Fund Manager - Foreign Securities & Senior Equity Analyst. Vyas acts as the dedicated Fund Manager for Overseas Investments for all eligible Schemes of HDFC Mutual Fund.

View

HDFC Midcap Opportunities Fund has an excellent performance track record across all time horizon and market cycles. In spite of being a mid/small cap fund, the fund has managed to contain the risk by significant diversification in stocks/sectors without diluting its performance.

We like the fund consistency to outperform the benchmark and category average across all market cycles. Ability to generate a significant alpha during large movements in the market makes us recommend this fund as one of the top pick in your portfolio.

The only word of caution can be the size of the fund. If the size of the fund grows above Rs 5500 crore and the fund manager doesn’t increase the number of stocks in his portfolio, we feel the fund is likely to become more risky. Till then, it is one of the best bets in the mid cap space.

 
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