Four consistent midcap mutual fund performers

Published: August 24, 2021 at 8:02 am

There are a total of 23 actively managed midcap mutual funds available for investment today. Out of these, 20 are older than five years. This article evaluates how these midcap mutual funds have fared against the Nifty Midcap 150 Total Returns Index. We identify four midcap mutual funds that have outperformed the index consistently.

We shall consider rolling returns. That is, we shall compare every possible 3,4 and 5 year return period possible from 1st Jan 2013 (from the inception of direct plans) to Aug 6th 2021.

We shall use the Equity Mutual Fund Screener Aug 2021 to shortlist consistent performers. First, we consider five-year rolling returns. We shall define a rolling return outperformance consistency threshold as 70%. The fund should have outperformed the index 70% of the total rolling return windows considered.

For example, there are 883 5-year rolling returns windows possible for the time duration mentioned above duration. L&T Mid Cap Fund-Direct Plan-Growth has outperformed the Nifty Midcap 150 Total Returns Index 734 out of those 883 return windows. That is an 83% rolling returns outperformance consistency.

  • If we apply 70% as the threshold over five years, then five midcap funds qualify.
  • Four out of those funds qualify if we also require 70% rolling returns consistency over four years.
  • On top of this, if we also require 70% rolling returns consistency over three years, the same four funds qualify.

List of consistent midcap mutual fund performers

  1. DSP Midcap Fund – Direct Plan-Growth
  2. Invesco India Midcap Fund – Direct Plan-Growth Option
  3. L&T Mid Cap Fund-Direct Plan-Growth
  4. Kotak Emerging Equity Scheme – Growth – Direct

Four out of a possible 20 (with five years or more history) is quite a small number especially considering how many MF industry folk claim it is easier to beat the market in the midcap (and small cap) segments.

More importantly, the top four or five funds tend to change every few years. This is based on past data. So even if you choose one of these for investment today, they may slip down in future.

Those who want midcap (or small cap) exposure need not look beyond Nifty Next 50 passive funds. See: Combine Nifty and Nifty Next 50 funds to create large, mid cap index portfolios and What is the best way to invest in Nifty Next 50 Index? and ICICI Nifty Next 50 Index Fund vs Nippon India ETF Junior BeEs

However, the alternatives are no bed of roses either! Any index fund beyond the top 100 NSE stocks (in this case, Midcap ETFs or index funds) suffers from significant tracking errors, as shown recently: Not all index funds are the same! Beyond top 100 stocks tracking errors are huge!

The Nifty Next 50 is a good alternative, but it can be frustrating to hold if the top few Nifty stocks outperform the rest of the market as we saw yesterday: Why is ICICI Pru Nifty Next 50 Index Fund rated one-star?

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