Last Updated on September 5, 2022 at 4:45 pm
In this edition of the “fund performance report”, we look at DSP Midcap Fund. Launched in Nov 2006, the fund has an AUM of about Rs. 13,300 Crores. We shall compare the reward and risk performance consistency of the fund with respect to Nifty Midcap 150 TRI and Nifty Midcap 150 Quality 50 TRI.
The Quality 50 factor-based midcap index is chosen because active mid cap funds struggle to beat it. See: Why Midcap Mutual Funds may struggle to beat this New Index from NSE! Now that we have UTI Nifty Midcap 150 Quality 50 Index Fund (link points to detailed review), active midcap fund investors must ask if it is worth continuing in such funds.
Disclaimer: Fund performance reports present return and risk analysis of a fund with representative benchmarks and not investment recommendations. It must be expressly understood that the data below reflect only past performance and is in no way an indication of future performance. Our investment recommendations can be found here: Handpicked List of Mutual Funds (PlumbLine).
Like most midcap and smallcap funds today, the fund also started out as DSP BlackRock Small and Mid Cap Fund (BlackRock has since exited) in Nov 2006 with a mandate to invest 65% of assets outside the top 100 companies by market capitalization (both mid and small cap stocks).
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To comply with SEBI categorization rules, the fund became DSP Midcap in March 2018. This shift is evident from its market cap allocation history since July 2017. The fund has had a balanced multicap like market cap allocation before the change in mandate. This must be kept in mind while evaluating the SIP returns below. It seems to tactically vary small and large cap exposure.
We will use three metrics to analyze performance consistency compared to the Nifty Midcap 150 TRI. Analysis such as this can be found for 350+ equity funds in our monthly mutual fund screener.
1 Rolling return outperformance consistency: the fund returns are compared with category benchmark returns over every possible 3Y,4Y, 5Y period. Higher the outperformance consistency, the better. Suppose 876 fund returns were compared with 876 benchmark returns, and the fund has beaten the benchmark 675 times. The consistency score will be 675/876 ~ 77%.
Three Years
| Metric | Nifty Midcap 150 TRI | Nifty Midcap 150 Quality 50 TRI |
| No of rolling return entries Index (3 Years) | 1537 | 1537 |
| No of rolling return entries Fund (3 years) | 1537 | 1537 |
| No of times the fund has outperformed the index (3 years) | 1100 | 661 |
| rolling return outperformance Consistency Score (3 years) | 71.57% | 43.01% |
Four Years
| Metric | Nifty Midcap 150 TRI | Nifty Midcap 150 Quality 50 TRI |
| No of rolling return entries Index (4 Years) | 1289 | 1289 |
| No of rolling return entries Fund (4 years) | 1289 | 1289 |
| No of times the fund has outperformed the index (4 years) | 911 | 342 |
| rolling return outperformance Consistency Score (4 years) | 70.67% | 26.53% |
Five years
| Metric | Nifty Midcap 150 TRI | Nifty Midcap 150 Quality 50 TRI |
| No of rolling return entries Index (5 Years) | 1043 | 1043 |
| No of rolling return entries Fund (5 years) | 1043 | 1043 |
| No of times the fund has outperformed the index (5 years) | 824 | 285 |
| rolling return outperformance Consistency Score (5 years) | 79.00% | 27.3% |
Notice the huge difference in performance between the two indices. Although the notion of a “quality mid cap stock” is arbitrary and the past performance of such an index cannot be extrapolated into the future, it is hard to digest that a set of 3-4 metrics can easily beat an actively managed mid cap fund.
2 Upside performance consistency over every possible 3Y,4Y, 5Y: Higher the better. A score of 70% means, 7 out of 10 times, the fund performed better than the category benchmark when the benchmark was moving up. This is a measure of reward. It is computed from rolling upside capture data (see link below).
| Metric | Nifty Midcap 150 TRI | Nifty Midcap 150 Quality 50 TRI |
| upside performance consistency (3 years) | 3% | 15% |
| upside performance consistency (4 years) | 0% | 16% |
| upside performance consistency (5 years) | 0% | 10% |
This is in line with the behaviour of most funds that do not exhibit consistent upside capture > 100% (higher returns than the benchmark’s positive monthly return). See for example: Strange, but true! How mutual funds beat the index!
3 Downside performance consistency over every possible 3Y,4Y, 5Y. Higher, the better. A score of 60% means, 6 out of 10 times, the fund performed better than the category benchmark when the benchmark was moving down. This is a measure of risk protection. It is computed from rolling downside capture data. Read more: An introduction to Downside and Upside Capture Ratios.
| Metric | Nifty Midcap 150 TRI | Nifty Midcap 150 Quality 50 TRI |
| downside protection consistency (3 years) | 100% | 69% |
| downside protection consistency (4 years) | 100% | 81% |
| downside protection consistency (5 years) | 100% | 92% |
DSP Midcap Fund has a reasonable downside capture consistency with respect to both indices but while this has contributed to help beat the Midcap 150 index, it has not helped as much to beat the Midcap 150 Quality 50 Index.
Trailing returns and standard deviation
Versus Nifty Midcap 150 TRI
| Metric | Benchmark | Fund |
| 1Y return | 24.7% | 13.3% |
| 2Y return | 61.2% | 42.5% |
| 3Y return | 21.2% | 17.7% |
| 4Y return | 14.9% | 12.8% |
| 5Y return | 15.3% | 12.8% |
| Metric | Benchmark | Fund |
| 1Y standard deviation | 4.4% | 4.2% |
| 2Y standard deviation | 8.9% | 8.0% |
| 3Y standard deviation | 7.8% | 6.8% |
| 4Y standard deviation | 7.1% | 6.3% |
| 5Y standard deviation | 6.6% | 5.8% |
Versus Nifty Midcap 150 Quality 50 TRI
| Metric | Benchmark | Fund |
| 1Y return | 18.93% | 13.33% |
| 2Y return | 46.85% | 42.47% |
| 3Y return | 19.06% | 17.74% |
| 4Y return | 13.51% | 12.84% |
| 5Y return | 15.81% | 12.81% |
| Metric | Benchmark | Fund |
| 1Y standard deviation | 4.37% | 4.21% |
| 2Y standard deviation | 7.63% | 7.97% |
| 3Y standard deviation | 6.71% | 6.82% |
| 4Y standard deviation | 6.11% | 6.33% |
| 5Y standard deviation | 5.69% | 5.84% |
DSP Midcap Fund has underperformed both indices over the last 1,2,3,4 and 5 years without any significant standard deviation benefit.
Unless they have supreme confidence in the fund management, the time has come for existing investors to reconsider their faith in DSP Midcap Fund. This also applies to most midcap funds since few manage to beat the Quality 50 mid cap index. UTI Nifty Midcap 150 Quality 50 Index Fund is an option but this comes with its own set of pros and cons (see article) that one must consider.
The Midcap 150 or Midcap 50 indices are not efficient choices. See: Not all index funds are the same! Beyond top 100 stocks tracking errors are huge! And Axis Nifty Midcap 50 Index fund Review. Nifty Next 50 is a reasonable passive mid cap alternative but it can be frustrating to hold. See: Is it time to exit from Nifty Next 50? Tough choices in the mid cap space!
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