HDFC Mid-Cap Opportunities Fund: Witnessing Turnaround Growth

Mid Cap Funds tend to be highly volatile and can suffer huge losses during uncertain market conditions. However, they have the potential to generate attractive returns in the long run. So, instead of avoiding Mid Cap Funds during market corrections, you can take advantage of attractive valuations in the segment to hike your exposure.

When investing in Mid Cap Funds, you should be aware of the underlying risk and preferably invest via the SIP route. Click here to check out PersonalFN's list of the best Mid Cap Funds to invest in 2023.

HDFC Mid-Cap Opportunities Fund is the most popular scheme in the Mid Cap Fund segment that has bounced back strongly after witnessing a dull phase and once again proved its superiority over longer time periods.

Past performance is not an indicator of future returns
Data as on March 21, 2023
(Source: ACE MF)

HDFC Mid-Cap Opportunities Fund has a superior track record of above-average performance and has distinctly outperformed the benchmark and many of its peers over various time periods in the past. After witnessing a rough phase between 2016 and early 2020, during which it struggled to outpace the benchmark, HDFC Mid-Cap Opportunities Fund has bounced back strongly with superior gains in the last couple of years. In the last 1-year and 2-year periods, HDFC Mid-Cap Opportunities Fund has generated a lead of around 4-7 percentage points over the benchmark and the category average. The recent superior growth has improved its long-term performance numbers as well. Over the longer 5-year and 7-year periods, the fund has generated returns nearly on par with the benchmark and has outpaced many of its peers.

The fund has also been reasonable when it comes to managing volatility. Its standard deviation is lower than that of its benchmark and many of its category peers. In terms of risk-adjusted returns (as denoted by the Sharpe ratio), HDFC Mid-Cap Opportunities Fund has outperformed its benchmark and the category average by a significant margin.

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Investment strategy of HDFC Mid-Cap Opportunities Fund

Categorised under midcap funds, HDFC Mid-Cap Opportunities Fund is mandated to invest at least 65% of its assets in equity & equity-related instruments of mid-sized companies, defined as those ranking 101st to 250th on full market capitalisation basis. The non-midcap exposure in the portfolio can go up to 35% of its assets. Accordingly, HDFC Mid-Cap Opportunities Fund invests predominantly in stocks of mid-sized companies, which have reasonable growth prospects, sound financial strength, sustainable business models, and are available at acceptable valuations that offer potential for capital appreciation. It follows the bottom-up approach to identify high-quality businesses for the long term, meaning the fund focuses on the strengths of company fundamentals rather macroeconomic indicators.

HDFC Mid-Cap Opportunities Fund holds a well-diversified equity portfolio of around 60-70 stocks and prefers to stay invested in each of its holdings with a long-term view. Following a buy-and-hold investment strategy, the fund manager refrains from unnecessary churning in the portfolio and avoids chasing momentum. Moreover, the fund is cautious in its approach, which helps it to perform well even during uncertain market phases. HDFC Mid-Cap Opportunities Fund usually remains fully invested across market cycles, taking very limited cash calls.

Being a large-sized Mid Cap Fund, HDFC Mid-Cap Opportunities Fund usually holds a large portfolio of 60-70 stocks and has limited the exposure to a single stock to well within the 5% mark. As of February 28, 2023, HDFC Mid-Cap Opportunities Fund held 63 stocks in its portfolio, with the top 10 stocks accounting for 33.7% of its assets. Mid-cap names like The Indian Hotels Company, Max Healthcare Institute, Sundram Fasteners, Tata Communications, and Apollo Tyres currently appear among its top portfolio holdings. HDFC Mid-Cap Opportunities Fund has a low turnover ratio of around 10-20%, which reflects the strong long-term conviction the fund manager has when he picks the stocks for the portfolio and holds them for the long term.

HDFC Mid-Cap Opportunities Fund's prominent bets on Bharat Electronics, The Indian Hotels Company, Tube Investments of India, Cholamandalam Investment & Finance Company, Gujarat Fluorochemicals, and Persistent Systems have turned out to be rewarding for the fund in the last 2 years. The fund also benefitted from its holdings in Solar Industries, SKF India, Sundaram Fasteners, Balkrishna Industries, Schaeffler India, Redington, and Jindal Steel & Power, among others.

HDFC Mid-Cap Opportunities Fund's portfolio is dominated by Financial & Engineering stocks that cumulatively form 38.2% of its assets. The fund also holds substantial exposure to Auto Ancillaries, Infotech, Consumer Durables, Hotels, Chemicals, Pharma, Healthcare, and Telecom having allocation in the range of 3-9%. The top 5 sectors in the fund's portfolio together account for around 55.1% of its assets. HDFC Mid-Cap Opportunities Fund's portfolio is fairly diversified across Cyclicals, Defensives and Sensitive sectors.

Suitability

HDFC Mid-Cap Opportunities Fund's performance over longer time periods is commendable wherein it has generated reasonable growth for its investors. The fund has delivered noteworthy returns across various market phases, thereby rewarding long-term investors for their patience. It has the ability to deliver stable yet strong returns across market conditions.

The focus on identifying long term-growth opportunities in fundamentally sound mid-sized stocks enables the fund manager to invest in stocks with high intrinsic value allowing the fund more time to realise the growth potential of its investments. Moreover, it avoids momentum-driven bets which helps it reduce the risk while rewarding its investors adequately in the long run.

Having higher allocation to mid-caps and small-caps HDFC Mid-Cap Opportunities Fund is suitable only for investors having an appetite for higher risk and willing to stay invested for a long-term period of at least 5-7 years.

Note:  This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

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