Mid-cap funds post returns of 101% over a year

But half of them underperform benchmarks.

Suresh Parthasarathy

BL Research Bureau

Funds that focussed on mid-cap stocks have clocked impressive returns over a one-year period. The average return for the mid-cap funds category was 101 per cent (as on April 19) against the 76 per cent generated by the diversified peers. The mid-cap stocks barometer – the CNX Mid Cap – generated 104 per cent, while the BSE Midcap index has delivered generated 102 per cent against 56 per cent and 60 per cent generated by bellwether indices CNX Nifty and BSE Sensex .

Despite such a stellar performance both the mid-cap indices were some way away from their all-time highs achieved in the early part of 2008. The segment bore the burnt of the market meltdown. The return divergence between mid-cap funds was however wide. The gap between the best in the category and the worst was quite wide at 42 percentage points. Over a one-year period, ICICI Pru Discovery, the fund that practices value investing, clocked 123 per cent and topped the return chart, while JM Midcap has generated a return of 84 per cent and finished at the bottom of the mid-cap category. This was still better than the diversified fund category average.

Sector selection played a major role in the performance. For instance, in March 2009, the top three preferred sectors of ICICI Pru Discovery were pharma, banks and petroleum, while JM Mid Cap Fund invested mainly in the auto sector. At the start of the market rally in 2009 several mid-cap funds held higher cash position, and were slow to participate in the rally.

For instance, Magnum Global held cash and equivalents to the tune of 18 per cent, while Birla Midcap held 14 per cent. But at the end of one-year period both the schemes managed to beat the CNX Mid Cap Index by 8 and 12 percentage points through quick deployment and stock selection. However for the same period, 10 out of the 21 mid-cap schemes failed to beat the CNX Midcap.