This is a performance review of Sundaram Mid Cap Fund (previously Select Mid Cap Fund) one of the most consistent performers in the mid cap fund space. Since its launch in July 2002, it has grown to become to fourth place in terms of AUM (~ 5700 Crores) and is one of the few mid cap funds to have comfortably outperformed the Nifty Midcap TRI index (more on this in a separate post).
The main characteristics of the fund and its benchmark (S&P BSE Mid Cap) have remain unchanged after the SEBI categorization rules. However it used to define Midcap as the bottom 450 stocks of the NSE (rightfully including Nifty Next 50) but now it is the 101st to 250th stock (descending market capitalization). Readers may recall that I am running a SIP in this fund (not for myself though): Lessons from my SIP in Sundaram Select Midcap Fund. Like any mid cap fund, the journey was(is) a rough ride.
Sundaram Mid Cap Fund: Investment Philosophy
The fund uses what it calls the 5S approach along with growth at a reasonable price:
- Simple Business
- Scalable Opportunity
- Sound Management (promoter)
- Sustainable Competitive Advantages
- Steady & Sustainable Cash-Flows
The fund has the freedom to go overweight or underweight on sectors depending on its future outlook.
Morningstar risk and return rating
Investors can get a quick look at the risk and return rating of the fund at Morningstar. Over the last 3,5 and 10 years we see that the fund has a higher upside capture (performance when index moves up)than the category but poor downside protection (tendency to fall less than the index). So existing and potential investors should keep in this mind. See the change in numbers when you change settings to 3Y and 5Y.
Rolling returns and risk comparison with benchmarks and peers
We shall consider the return and risk performance of Sundaram Mid Cap fund with benchmarks and few peers. We present the 10Y and 5Y rolling return data along with rolling risk below. For rolling returns, we shall consider every possible 10Y or 5Y returns since inception of the fund. For rolling risk, we calculate the standard deviation of monthly returns over every possible 10Y or 5Y periods.
Sundaram Mid Cap has an impressive long-term record, comfortably outperforming mid cap indices, Franklin Prima and L & T. HDFC Mid Cap Opp has outperformed in its shorter history both in terms of risk and reward. Read more: HDFC Mid-Cap Opportunities Fund: Performance Review
Over five years too, Sundaram Mid Cap has consistently beat Nifty Midcap 100 which is difficult to do. See: Why we badly need a Midcap & Smallcap Index Fund : Performance Comparison with Nifty Midcap 100 & Nifty Next 50. Over shorter durations, there is not much difference among peers although HDFC Mid cap continues to have lower volatility.
Summary: Should I invest in Sundaram Mid Cap Fund?
There is no reason for existing investors (at least older ones) to consider an exit as they should now be used to the funds volatility and reasonably happy with its performance. Newer investors must understand that this fund can test your patience and take time to deliver. So use it only for truly long-term goals.
This is a consistent performer in the mid cap space, but do not expect downside protection from it. When the index falls, this is likely to fall more and make up for it when the cycle reverses. So unless an investor has the right mindset to weather such storms, they should consider this fund. Although the point-to-point returns, look rosy, the journey is likely to be far from smooth.
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