The HDFC Mutual Fund house has been one of the best performers in the Indian market with several 5-star rated funds under management. Some of these funds have track records of 10-15 years. That means they have been through two bull-bear cycles.
However, a younger fund – barely 4 years old – has been performing quite well. The HDFC Mid-Cap Opportunities Fund (HMCOF) caught my eye because of several interesting allocation features in terms of percentage of net assets. These are listed below:
- Mid-Cap companies: 70-95%
- Small-Cap companies: 5-15%
- Other equity/related: 0-25%
- Debt/money market: 0-25%
- Derivatives (equity/debt): 0-20%
- Foreign securities: 0-25%
With such a wide array of investment options, the fund managers - Chirag Setalvad and Miten Lathia (dedicated for overseas investments) - have a lot of lee-way in playing around with different permutations and combinations to achieve optimum returns. What kind of returns have they provided so far?
Not bad at all. One year CAGR of 11.58%, three years CAGR of 22.85%, and return since inception (in June 2007) of 12.9%. During the bear market period of 2008-09, the fund dropped 38.1%, outperforming its benchmark index CNX Midcap (which fell 45.4%).
One of the problems faced by many small investors is that they have limited capital. The large-cap ‘A’ group stocks appear to be too expensive – both in terms of price and value. Instead of buying a small quantity of a large-cap stock, investors have a propensity to buy larger quantities of mid-cap and small-cap stocks. While such stocks can provide great returns during bull markets, they tend to crash through the floor in bear markets.
The HDFC Mid-Cap Opportunities Fund seems to be tailor-made to solve the above problem. The flexibility of hedging the portfolio through derivatives, and by adding debt/money market instruments and foreign securities helps to protect the down side to an extent.
The fund’s portfolio of mid-cap stocks should make any knowledgeable investor drool. Here are some of the top stock holdings:
- Ipca Laboratories
- Carborundum Universal
- Federal Bank
- Union Bank of India
- TTK Prestige
- Tube Investments
- Glaxo Consumer
- Divi’s Lab
- Sundaram Fasteners
- Tata Chemicals
- FAG Bearings
The fund also holds Crompton Greaves and Biocon, which haven’t performed all that well. A small amount invested regularly in HMCOF gives an exposure to some of the best known mid-cap companies that one can think of.