Should I Exit HDFC Mid-Cap Opportunities Fund?

Investors in HDFC Mid-Cap Opportunities Fund are worried about its recent dip in performance. We evaluate its return and risk with respect to its benchmark to find out what investor should do

Published: December 28, 2019 at 11:33 am

Investors in HDFC Mid-Cap Opportunities Fund are worried about its recent drop in performance. Is this because of the fund manager or because of the overall slump in midcap stocks? We evaluate recent risk and reward of the fund with respect to its benchmark to find out what investors should do with the fund. Can new investors also consider this fund?

In our detailed review of the fund in Nov 2018, we had pointed out the recent slump in performance and that a new investor should temper expectations from the fund. Let us now look at its recent performance. DIY investors can easily perform a similar analysis with any fund.

HDFC Mid-Cap Opportunities Fund vs Nifty Midcap 100 – TRI

Let us first compare the returns of the fund with its benchmark over different durations. Returns below one year are absolute and above are annualised.

1 Month0.54-0.09
3 Months1.221.38
6 Months-2.08-2.19
9 Months-2.75-4.20
2 Months2.884.30
4 Months7.528.23
5 Months5.264.63
7 Months-2.54-4.04
8 Months-3.06-4.15
10 Months5.382.52
11 Months3.970.01
1 Year1.77-3.25
2 Years-5.29-9.17
3 Years10.027.34
4 Years9.747.19
5 Years9.517.77

Notice that every time the index has given a negative return, the fund has given a lesser negative return. This is prominent, especially over 1 and 2 years. The fund appears to have turned things around in the last year.

Next, we consider the up and down capture ratios. The up capture ratio is defined as how much of the benchmark’s gains has the fund “captured” each time the benchmark moved up over a month.

While an up capture ratio of more than 100% would intuitively be desirable, most consistent long-time performers do not move up more than or even as much as the index during market upswings.  See: Strange, but true! How mutual funds beat the index!

The down capture ratio has a corresponding definition with respect to benchmark losses. A down capture ratio of less than 100% is desirable as this means the fund has lost less than the benchmark consistently.

2017-Dec-26 To 2019-Dec-26
2016-Dec-26 To 2019-Dec-26
2016-Dec-26 To 2017-Dec-26
2017-Dec-26 To 2018-Dec-26
2018-Dec-26 To 2019-Dec-26

The fund has an excellent downside capture ratio with reasonably strong upside performance. This means it tends to protect investors during turbulent periods such as the present.

Should I Exit HDFC Mid-Cap Opportunities Fund?

Provided that you are investing in the fund for a suitable time frame and suitable asset allocation, you can remain invested. The fund, however, is more suited for mature investors who do not panic, value downside protection and have reasonable return expectations.

At 22,792 crores the AUM is the fifth largest for an actively managed fund. However, there is no indication so far that is affecting performance. Readers interested in a review of its long-term performance can check out our recent review: HDFC Mid-Cap Opportunities Fund: Performance Review


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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements write to pattu [at] freefincal [dot] com
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