Avoid HSBC Midcap Equity Fund due to lacklustre performance

HSBC Midcap Equity Fund is an open ended mid cap investment with Banking and Consumer non -durables sectors occupying the top slot in the portfolio. Although the fund seeks to generate long term capital growth, it has been a consistent underperformer over most time periods. According to Arnav Pandya, investors should avoid this fund for the time being till it establishes stability in returns.

Nature: Equity oriented open ended

Inception: May 2005

Assets under Management: 100 crore at the end of July 2012

Fund Manager: Dhiraj Sachdev

Analysis

• The fund invests in mid cap stocks though it also has a mandate to move a portion of its assets into fixed income securities if the situation demands. At the end of July 2010, the fund had the highest exposure to Banks at around 13 per cent of the portfolio. This was followed by Cotton textiles and Consumer non-durables. A look at the individual holdings shows that Bombay Dyeing was the top holding followed by Vardhman Textiles, Jet Airways, and Hitachi Home & Life Solutions. The fund had a preference for public sector banks within its banking holdings with most of its picks coming from this area with Indian Bank having the highest exposure.  The portfolio turnover ratio of the fund was high at around 2.9 times and the fund was outperforming its Benchmark- the BSE Mid cap over the one year time period but not the three and five year period.
• Six months later Consumer non-durable was the top sector in the portfolio with an exposure of around 16 per cent pushing banks to the second spot. Now synthetic textile was in the third spot with a 9 per cent exposure. Bombay Dyeing remained the top holding in the portfolio but this was followed by KRBL and Jet Airways. Some of the other stocks with a significant exposure were J&K Bank, Dena bank, Diamond Power Infrastructure, Shree Renuka Sugars and Prime Focus. The funds portfolio turnover ratio dropped to 2 times but it was an underperformer over the one, three and five year time periods.
• At the end of July 2011, Consumer non-durables remained the top sector with 12 per cent exposure in the portfolio.  This was followed by Banks and Auto ancillaries that had a similar 9 per cent share.  The fund had nearly ten per cent of its portfolio into reverse repos and other current assets. Bombay Dyeing continued to be the top holding in the portfolio but it was closely followed by Prime Focus. Jet Airways, PI Industries, Diamond Power Infrastructure, KRBL, J&K Bank and Federal-Mogul were some of the other top holdings in the fund. The fund continued to underperform over all time periods.
• Six months later the cash and cash an equivalent in the portfolio was down significantly and in terms of the top sectors, Banks was once again in the top spot followed by Consumer non-durables and Auto ancillaries.  There was not much change in the top holdings as Bombay Dyeing was at the top and some of the other top holdings included PI Industries, Prime Focus, J&K Bank, Polaris, Apollo Tyres, GMDC and Venkys. The portfolio turnover ratio dropped below 2 but it remained an underperformer over the one and three year time periods.
• At the end of July 2012, Banks were the top sector in the portfolio and the exposure here was around 18 per cent. This was followed by Consumer non-durables. Auto ancillaries, consumer durables and synthetic textiles had around 8 per cent share each in the portfolio. Bombay Dyeing continued to remain the top holding in the portfolio followed by Apollo Tyres, J&K Bank, Dena Bank, GMDC and PI Industries. The portfolio turnover ratio halved to nearly 1 time. In terms of performance the fund was an outperformer over the one year period but not the three year one.
• Investors can stay away from this fund for the time being as it has been unable to deliver consistent outperformance for its unit holders on a sustained basis.