Sahara Midcap Fund
Zippiness is what we all desire when we talk about return on our investments. While many wonder how mutual funds can bring zippy returns to ones’ fund portfolio, let us apprise you that there is a breed in them known as mid & small cap funds which can help you accelerate on the returns front.
Mid & small cap funds are those mutual fund schemes, which own stocks of small and medium sized companies. While there’s no standard definition to classify a company as small and medium, generally the classification is done so on the basis of market capitalisation or the market value. It is noteworthy that such companies are generally established and have a potential to grow, as they are still in the growth stage of their life cycle, thereby having a potential of being tomorrow’s large caps. Being small in size (as compared to large caps) they have the capability to move fast like the Ferrari car, which adds to their energy on the returns front. Since small and medium sized companies are owned by such funds, they are like the leaner engine of a Ferrari car, which is powerful enough for you to win a race.
But remember the zippiness comes with a higher risk as well. Yes, you are right the volatility. While they offer a high risk-high return investment proposition, it is imperative to assess how driver of the Ferrari i.e. your fund manager of the mid & small cap fund manages that zippiness of the mid & small cap stocks to deliver enticing returns for you.
Sahara Midcap Fund (SMF) is one such open-ended diversified equity from the stable of Sahara Mutual Fund, having focus on investing primarily in midcap stocks. Launched in December 2004, SMF has been in existence for a little over 7 ½ years now.
| Type of scheme | Open-ended |
| Category | Diversified |
| Sub-category | Mid Cap |
| Style | Blend |
| Launch date | 22-Dec-04 |
| Risk-Return proposition | High Risk-Low Return |
Investment Objective and Proposition
The fund’s primary investment objective is “achieve long term capital growth with a medium level of risks by investing primarily in Midcap stocks.”
Portfolio Characteristics
Over the last one year being a mid cap oriented fund, SMF’s portfolio has been tilted towards stocks in the mid and small cap domain - ranging between 81.3% - 94.3% of its total asset, while a petite portion – ranging between 1.8% - 11.2% of its total assets, has been held in large cap stocks. The fund has refrained from taking aggressive cash calls, as SMFs exposure to cash and cash equivalents is upto 11.7% in the last 1 year. Under normal circumstances, SMF invests around 95% of its assets in equity shares and equity related instruments. The fund is mandated to invest in minimum of 20 stocks at any point in time and a minimum of 5 sectors. Moreover, the fund’s mandate also provides flexibility to invest in companies with lower market capitalisation as well. The lowest market capitalisation limit stands at Rs.60 crore while the uppermost limit would be equal to the market cap of the largest weighted stock on the CNX MIDCAP Index, at the time of investment.
Equity Portfolio
| Holdings | Feb 2012 | Mar 2012 | Apr 2012 | May 2012 | Jun 2012 |
|---|---|---|---|---|---|
| Jyothy Laboratories Ltd | 2.6 | 2.2 | 2.4 | 2.9 | 3.1 |
| City Union Bank Ltd. | 3.0 | 2.5 | 2.5 | 2.5 | 2.6 |
| Hindustan Petroleum Corporation Ltd. | 2.3 | 2.3 | 2.3 | 2.4 | 2.4 |
| Crompton Greaves Ltd. | 1.9 | 1.9 | 1.8 | 1.7 | 2.4 |
| Engineers India Ltd. | 2.7 | 2.6 | 2.6 | 2.5 | 2.4 |
| Raymond Ltd. | - | 1.8 | 1.7 | 2.2 | 2.4 |
| LIC Housing Finance Ltd. | 2.1 | 2.1 | 2.1 | 2.1 | 2.3 |
| Tata Coffee Ltd. | 2.1 | 2.1 | 2.2 | 2.4 | 2.3 |
| United Phosphorus Ltd. | 1.9 | 1.7 | 1.5 | 1.5 | 2.3 |
| Aditya Birla Nuvo Ltd. | - | - | - | 1.4 | 2.2 |
Top 10 holdings (in %) as on June 30, 2012
(Source: ACE MF,PersonalFN Research)
As per the portfolio disclosed on June 30, 2012, SMF is well diversified with 47 stocks; of which the “A” group constitute 40.4%, while the “B” group ones 59.6%. The fund’s top-10 holdings accounted for 24.5% of its assets, while allocation across top-5 sectors stood at 31.3% of its assets, thereby reflecting that SMF not only holds enough stocks, but is also adequately diversified across sectors. However, the fund manager has aggressively churned the portfolio as revealed by the portfolio turnover ratio of 2.1 times.
As on June 30, 2012 large caps holdings accounted for 10.4%,mid & small caps 83.2% while cash and cash equivalents 6.4% of the total assets.
How SMF has fared vis-à-vis its peers
| Scheme Name | 6-Mth (%) | 1-Yr (%) | 3-Yr (%) | 5-Yr (%) | Std. Dev. (%) | Sharpe Ratio |
|---|---|---|---|---|---|---|
| Religare Mid Cap (G) | 6.2 | -4.5 | 15.7 | 5.4 | 5.44 | 0.19 |
| UTI Mid Cap (D) | 6.0 | -4.8 | 13.2 | 6.1 | 5.91 | 0.15 |
| Sundaram Select Midcap (G) | 4.3 | -6.1 | 11.6 | 8.3 | 5.77 | 0.13 |
| Birla SL Small & Midcap (G) | 4.9 | -6.4 | 11.0 | 2.6 | 5.69 | 0.12 |
| Sahara Midcap (G) | 1.2 | -7.4 | 8.1 | 6.0 | 5.91 | 0.08 |
| CNX Midcap | 0.4 | -8.2 | 6.8 | 4.0 | 6.22 | 0.07 |
(NAV data is as on August 02, 2012. Standard Deviation and Sharpe ratio is calculated over a 3-Yr period.
Risk-free rate is assumed to be 6.37%)
(Source: ACE MF, PersonalFN Research)
As far as the performance of SMF is concerned, the table above reveals that it is nothing to vie for. Barring a 5-Yr time frame, SMF has underperformed vis-à-vis the category average return across the aforementioned time frames. On a 3-Yr return front, although SMF has been to outperform against its benchmark – CNX Midcap, by delivering a 8.1% CAGR; the returns appear abysmal when compared to some of the top performers in the mid cap category.
On the volatility front too, the fund has exposed its investors to slightly high risk (as revealed by the Standard Deviation of 5.94%) when seen in comparison to risk of the category average of midcap funds (Standard Deviation of category average is 5.82%). Thus on a risk-adjusted returns too (as gauged by the Sharpe Ratio), SMF has delivered risk adjusted returns similar to (Sharpe Ratio of 0.08) the category average risk-adjusted returns of Midcap funds.
| BULL PHASE | BEAR PHASE | BULL PHASE | CORRECTIVE PHASE | |
|---|---|---|---|---|
| 01-Aug-2005 - 09-Jan-2008 | 09-Jan-2008 - 09-Mar-2009 | 09-Mar-2009 - 05-Nov-2010 | 05-Nov-2010 - 02-Aug-2012 | |
| Sahara Midcap (G) | 49.0% | -62.0% | 114.1% | -12.7% |
| Category Average | 51.0% | -63.4% | 105.9% | -9.5% |
| CNX Midcap | 50.7% | -62.9% | 105.6% | -15.4% |
(Source: ACE MF, PersonalFN Research)
A study of performance across market cycles reveals that SMF has lagged in during the bull phase prior to the U.S. sub-prime mortgage crisis (which had a rippling and crippling effect on Indian equity markets). Likewise, during the downside of the Indian equity market (i.e. bear phase during the U.S. sub-prime mortgage crisis) it has been vulnerable. Only in the last bull phase (after the U.S. sub-prime mortgage crisis) it has delivered some appealing returns, but again in the present corrective of the Indian equity markets it has thus far not been able to arrest the downside well, when compared to some of the top performers in the mid cap category.
Fund Manager Profile
| Name of the Fund Manager | Mr. A.N.Sridhar |
| Total Work Experience | Over 22 years |
| Managing the fund since | Feb-07 |
| Qualifications | P.G.(Electronics), MFM |
In a nutshell...
The performance of Sahara Midcap Fund is nothing to vie for when compared to some of the top performers in the category as well as the category average; although it has performed a tad better than its benchmark – CNX Midcap Index. Moreover, the portfolio of Sahara Midcap Fund is excessively churned, and this trading oriented approach could prove to be hazardous as it would mar the performance in the long run.
Hence given the above unappealing and inconsistent performance of Sahara Midcap Fund, it would be wise for investors to stay away from investing your hard earned money in the said fund. An unbiased professional advice from a mutual fund expert for selecting winning mutual funds remains imperative.
