This is a performance review of L&T Midcap fund. Launched in Aug 2004, it has grown to the 6th position in terms of AUM ( ~ 3,700 Crore). Off the cuff, it appears to be a volatile fund since it has fallen by -7% in the last year, but it has still managed to keep pace with BSE Midcap. Let us dig deeper and find out.
L&T Midcap Fund: Investment strategy: Prior to the SEBI categorization rules, it had a mandate to “invest in companies whose market capitalization falls between the highest and the lowest constituent of the Nifty Free Float Midcap 100 Index”. Perhaps ironically its mandate is now a lot broader!
As per SEBI rules, Mid Cap stocks are those ranked between 101 and 250 based on the full market capitalisation and a midcap fund only needs to be invested in 65% of such stocks. The benchmark remains as Nifty Midcap 100 Index (new version from NSE). The AMC hopes to control portfolio risk by select stocks based on:
• Management quality, strategy and vision
• Business dynamics
• The financial strength of the company
• Free cash flow
• Returns on capital employed and returns on equity
• Credit Rating for the instrument in case of Debt instruments
The fund has seen several fund manager changes in the past. As you would see from the analysis below, the performance has picked up only after the appointment of S. N Lahiri.
L&T Midcap fund vs NIfty 100 Midcap TRI
The 3Y, 5Y and 7Y returns and risk (standard deviation) for L&T Midcap fund is compared with Nifty 100 Midcap TRI. If we sort NSE stocks by free-float market cap, the top 100 are called, large cap, the bottom 250 small cap and the middle 150 as mid cap.
Out of these 150, stocks the top 50 stocks from NSE Midcap 50. The Nifty 100 Midcap Index, formerly known as NIFTY Free float Midcap 100, contains all stocks from Midcap 50 index and the rest 50 are chosen from the 150 stocks based on average daily turnover. Please have a good look at the three graphs below and then scroll down to the observations.
Three-year rolling returns and risk
Five-year rolling returns and risk
Seven-year rolling returns and risk
Observations: Notice how the performance picks up mid-2013. Prior to the appointment of S. N. Lahiri, even the risk was compared to that of the index. For the last 5.5 years or so, the fund has outperformed the index in terms of return and risk.
L&T Midcap fund vs Peers
Let us now look at the five-year rolling return and risk performance of L & T Midcap with other popular peers like HDFC Mid Cap Opportunities (read review here), Franklin India Prima Fund (read review here), Kotak Emerging Equity, Axis Midcap and Sundaram Midcap (read review here).
Rolling Return (5Y)
Rolling Risk (5Y)
Rolling Return (10Y)
Observations: Overall that is pretty good. L & Midcap Fund is neither the worst nor the best and that is good enough.
Overall, I think L &T has turned around the fortunes of this fund well, but the fund manager has not yet been severely tested. Existing investors do not have anything to worry about as of now. New investors can certainly consider this fund, but all investors, as always must keep an eye not only on performance but also on the AUM inflow each month. Be on guard if there is a sudden surge in AUM.
Other mutual fund reviews
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