Last Updated on October 6, 2021 at 7:52 am
Thanks to effective industry propaganda, many investors believe that mutual fund managers in the mid cap space can easily beat a mid cap benchmark. In this article, we bust this myth with rolling returns and trailing results comparison of active mid cap mutual funds with Nifty Midcap 150 TRI.
First, let us compare trailing returns as of Oct 4th 2021. The March 2020 market crash acted as a reset for mid cap and small cap stocks. Midcap indices that were south-bound since early 2018 made a sharp recovery. So how have active midcap funds fared?
- Trailing one year: Only 5 out of 26 midcap funds beat the Nifty Mid cap 150 TRI
- Trailing two years: Only 4 out of 24 midcap funds beat the Nifty Mid cap 150 TRI.
- Trailing three years: 12 out of 24 midcap funds beat the Nifty Mid cap 150 TRI.
- Trailing four years: 10 out of 22 midcap funds beat the Nifty Mid cap 150 TRI.
- Trailing five years: 7 out of 21 midcap funds beat the Nifty Mid cap 150 TRI.
- Trailing six years: 3 out of 21 midcap funds beat the Nifty Mid cap 150 TRI.
- Trailing seven years: 5 out of 21 midcap funds beat the Nifty Mid cap 150 TRI.
- Trailing eight years: 11 out of 19 midcap funds beat the Nifty Mid cap 150 TRI.
Typically less than 50% of the actively managed mid cap funds beat a standard category benchmark. So it is baseless to assume it is easy to beat the index in the mid cap space!
We refer to our Equity Mutual Fund Screener Sep 2021 for rolling return analysis.
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- Rolling returns over five years: Only 5 out of 20 funds outperformed the Nifty Midcap 150 TRI 70% or more over the rolling return periods considered.
- Rolling returns over four years: only 5 out of 22 funds (same condition)
- Rolling returns over three years: only 6 out of 23 funds (same condition)
So this underperformance is not a flash in the pan! It is consistent! Bull market or bear market, active mid cap fund managers have struggled to beat a market capitalization-weighted mid cap index.
In addition, active midcap mutual funds wrt Nifty Next 50 has also been poor: Only four midcap mutual funds have outperformed Nifty Next 50 consistently. This is why we stopped including mid cap funds in our handpicked List of Mutual Funds Oct-Dec 2021 (PlumbLine).
So what is the alternative? Certainly not midcap index funds! Their tracking errors are too high at least at the time of writing: Not all index funds are the same! Beyond top 100 stocks tracking errors are huge!
As established earlier, Nifty Next 50 is not a large cap index and is a good replacement for mid cap indices. Also, see Nippon India Nifty Midcap 150 Index Fund Review. And, Should I start a SIP in the Midcap 150 Index fund for diversification?
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