Religare Invesco Mid N Small Cap Fund: A review

Vidya BalaFundsindia.com

If you are looking for a mid-cap fund which is conscious of valuations and contains downsides reasonably well, compared with its category, then Religare Mid N small Cap fund is an option.

With a return of 36 per cent compounded annually over the last three years, this mid and small-cap focused fund convincingly beat its benchmark, CNX Midcap’s performance of 24 per cent. Its rather offbeat portfolio of both mid and small-cap stocks can provide you with exposure to the lesser-known stocks in the smaller market-cap segment.

Who should invest

As a mid-cap fund, Religare Invesco Mid N Small Cap is only for investors who can take on some risks and have a long-term horizon of five years or more. The fund can be a part of your holding, if you already hold an asst allocated portfolio with sufficient exposure to large-cap and diversified equity funds.

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Head- Mutual Fund Research|FundsIndia.com

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The amount of exposure to funds in the mid and small-cap category is dependent on your risk appetite and your understanding of this market cap segment. In general, allocating 20-30 per cent of your equity exposure to pure mid- and small-cap funds would suffice to generate the additional kicker returns for your portfolio. Remember, you are also taking further exposure to the mid- and small-cap segment through diversified funds. Hence, your overall exposure will be higher.

You can invest in Religare Invesco Mid N Small Cap through the Systematic Investment Plan (SIP) route to avoid the risk of ill timing the market. A 3-5 year SIP can help average costs well and earn optimal returns.

Performance

Religare Invesco Mid N Small Cap fund has managed to consistently beat its benchmark. When its one-year returns were rolled daily, since its launch, we found that the fund beat its benchmark 86% of the times. This is a good proportion for a mid-cap fund.

Religare Invesco Mid N Small Cap Fund’s one-year returns, rolled every day, since its launch suggests that the fund beat its benchmark 86 per cent of the times. That is a sound record.

Had you started a Rs. 10,000-a-month SIP in Religare Invesco Mid N Small Cap at inception, you would have a handsome Rs. 23.8 lakh today. That’s an Internal Rate of Return (IRR) of about 28 per cent. The benchmark, CNX Midcap Index, on the other hand, would have fetched just Rs. 15.92 lakh; that’s an IRR of 18 per cent annually.

Its return since inception could have been even better had the fund stayed fully invested in equities in the rally following the March 2009 lows. It had a fifth of its assets in debt and cash then. Still, by 2010, the fund found its feet well in the markets. It managed 35 per cent that year, well above the equity category average of 20 per cent. The fund’s outperformance became visible from 2011 and it has, since then, been consistently beating the index.

Religare Invesco Mid N Small Cap Fund scores well on the risk front too. Its risk-adjusted returns measured by the Sharpe ratio, is as good as its peers over a three-year period. In fact, on a risk-adjusted basis over the above-said period, it scores over peers such as HDFC Midcap Opportunities, ICICI Value Discovery, and UTI Midcap.

Portfolio

As of April 2015, well over two-thirds of the fund’s equity holdings were stocks with a market-cap of less than Rs 10,000 crore. That over a third of the equity allocation was in stocks over Rs 10,000 crore of market cap or over suggests that the fund also invests quite a bit in nascent large caps – that is stocks that are transitioning from being a pure mid cap to a large-cap one. It also sports a low portfolio turnover ratio (just 0.51 times in last 1 year).

Like most other funds, the banking and financial sector remained Religare Invesco Mid N Small Cap’s top pick as of April 2015. It also had a good 13% in industrial products. Media and entertainment took the third place in its sector exposure. The fund is managed by Vinay Paharia.

Returns as of May 20, 2015

Returns over one year are annualised.

Past performance is not indicative of future results.Mutual Fund investments are subject to market risks, read all scheme related documents carefully.