Religare Mid Cap - INVEST

Investors can consider buying units of Religare Mid Cap fund based on its three-year performance.

The performance is noteworthy, considering the fact that picking mid-cap stocks has not been easy in the last couple of years, with interest costs and input costs taking a toll on companies in this segment.

The fund also managed to contain losses during market corrections in the past two years and bettered its benchmark CNX Midcap across corrections.

On a few occasions, it has even bettered CNX Nifty by a good margin. The fund can be classified as among the few mid-cap funds with ability to contain downsides well.

Over a three-year period, the fund clocked compounded annual return of 38 per cent and outpaced CNX Midcap by nine percentage points and Nifty by 16 percentage points.

Its showing places it in the top quartile of the performance chart of funds from this category.

Launched during the peak of the market cycle, the fund did lose a heavy 64 per cent of its value in 2008.

But then, it made a noteworthy comeback. It managed to hold its ground in the subsequent corrections through apt sector selection. The fund is yet to cross its peak NAV value in January 2008. But this is the case with most other funds. Investors can consider adding its units in small lots to their portfolio.

However, given its limited track record, this fund need not be your core portfolio holding.

Performance

Religare Mid Cap navigated markets well in 2011. Its NAV declined 17 per cent as against the 30-per cent decline in CNX Midcap and 24 per cent in Nifty. In the past six months, the fund's NAV declined by 2.7 per cent against a lower decline in the category average.

The marginal underperformance over this short period could be due to higher exposure to banking stocks that were beaten down.

Portfolio overview

Despite its small size, the fund's portfolio is extremely diversified. It holds 49 stocks and no single stock accounts for more than 5 per cent of its holding. The most preferred sectors are banks, consumer non-durables and industrial products. While this strategy might help during market corrections, it may diffuse portfolio returns during bull rallies.

However, the fund's approach of taking concentrated exposure (close to a fifth of assets) in a single sector may make up for this, provided it picks the right sectors.

For instance, the fund's high exposure to consumer non-durables worked in its favour last year.

But with few other sectors bouncing back in 2012, it will be a challenge to pick stocks/sectors in the ongoing rally. But being a mid-cap fund with small asset size, the fund will be able to rejig its portfolio quickly.

Unlike some of its peers, the fund restricted most of its exposures to stocks with market capitalisation of around Rs 7,500 crore.

In the pullback beginning 2012, stocks in the portfolio, such as Corporation Bank, Yes Bank and Tree House Education returned 40 per cent-plus.

The fund is managed by Mr Vinay Paharia.

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