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Investors looking for mid-cap exposure with relatively less volatility can consider phased exposure to units of HDFC Mid-Cap Opportunities (HDFC Mid-Cap). While the fund managed to smoothly tide over the market meltdown in 2008 thanks to its close-end status, its equally good performance after becoming open-ended from June 2010 imparts confidence. Its three-year compounded annual return of 22 per cent places it among the top funds in the diversified equity category.
Suitability : The fund is suitable for investors who wish to pep up their portfolio returns without undertaking the typical risks associated with mid-cap funds. HDFC Mid-Cap can be termed less risky than such peers as IDFC Small & Midcap Equity, given that it has in the past held a good 20-30 per cent of its assets in large-cap stocks. IDFC Small & Midcap Equity, though, would be more suitable for aggressive investors, given its superior returns in short-term rallies.
Given the sharp market swings in recent times, investors can buy units through the SIP route to average costs.
Performance : HDFC Mid-Cap Opportunities has consistently outperformed its benchmark CNX Midcap index, 75 per cent of the times on a rolling return basis, since its launch in 2007. The outperformance is especially apparent in the last two years, when the fund managed a compounded annual return of 17 per cent as against the 3 per cent gain seen in its benchmark.
Its return since launch though, is less than 10 per cent compounded annually; its launch during the 2007 market peak being one reason. Among mid-cap funds, this performance is next only to IDFC Premier Equity and marginally better than one of the best diversified funds from the same stable, HDFC Equity.HDFC Mid-Cap has traditionally held at least 20 per cent in large-cap stocks. This, to some extent, cushioned the fall during the 2008 meltdown.
This time around, though, many other mid-cap funds have taken the cue and now hold similar proportion in large-cap stocks. That said HDFC Mid-Cap managed to curtail the fall in 2011 better than its mid-cap peers as a result of picking offbeat mid and small-cap stocks that actually rallied this year. Carborundum Universal, Solar Industries and Bata India are some of the picks that worked well for the fund.
The fund has also been judicious in booking profits partially in stocks such as Bata India.
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