SBI Magnum Midcap Fund: Focusing on High Conviction Mid-cap Stocks

Jan 06, 2023

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Mid Cap Mutual Funds are equity-oriented mutual funds that invest in mid-sized companies that have a market cap of more than Rs 5,000 but less than Rs 20,000 crore.

Mid Cap Mutual Funds have the potential to deliver superior returns because mid-sized companies are usually in their growth phase. Historical data suggests that Mid Cap Mutual Funds have the ability to outperform Large Cap Mutual Funds over the long term.

SBI Magnum Midcap Fund is a Midcap Fund that has bounced back with strong gains in the last couple of years and has moved far ahead of its peers and the benchmark in terms of risk-adjusted returns.

 

Graph 1: Growth of Rs 10,000 if invested in SBI Magnum Midcap Fund 5 years ago

Launched in March 2005, SBI Magnum Midcap Fund aims to invest in a well-diversified basket of equity stocks of mid-cap companies. With a track record of over one and a half decades, SBI Magnum Midcap Fund has generated returns at a CAGR of 16.5% since its inception. However, the journey of the fund has not been smooth. Since its inception, the fund has been through many ups and downs, right from being a top category performer to a category laggard. Between CY 2011 to 2016, the performance of the fund picked up significantly, which helped it find a place among the category toppers. However, SBI Magnum Midcap Fund witnessed a prolonged dull phase between 2016 and 2019, wherein it trailed the benchmark and many of its peers by a noticeable margin. Nonetheless, SBI Magnum Midcap Fund managed to limit the downside during the 2020 market crash to stand strong among its peers. Moreover, the fund also stood among the top performers in the category during the ensuing bull phase, thereby witnessing a complete turnaround. This highlights SBI Magnum Midcap Fund’s ability to reward investors reasonably over longer time frames. In the last 5 years, SBI Magnum Midcap Fund has grown at a CAGR of 11.9%, which is nearly in line with its benchmark Nifty Midcap 150 – TRI. An investment of Rs 10,000 in the fund five years back would now be worth Rs 17,507.

Graph 1
Past performance is not an indicator of future returns
Data as on January 03, 2022
(Source: ACE MF)
 

Table: SBI Magnum Midcap Fund's performance vis-á-vis category peers

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
Quant Mid Cap Fund 1,273 20.91 36.14 39.10 21.52 18.85 24.36 0.37
PGIM India Midcap Opp Fund 7,577 -0.16 28.76 36.13 18.05 17.51 24.49 0.37
SBI Magnum Midcap Fund 8,436 2.24 25.46 27.22 11.85 14.04 24.83 0.28
Edelweiss Mid Cap Fund 2,478 3.90 25.40 26.49 13.26 16.56 24.74 0.28
Mirae Asset Midcap Fund 8,953 5.46 26.08 26.16 -- -- 24.52 0.27
Motilal Oswal Midcap Fund 3,657 10.65 32.67 25.47 14.21 15.25 25.20 0.26
HDFC Mid-Cap Opportunities Fund 36,158 13.37 26.24 25.14 12.46 16.19 24.34 0.26
Kotak Emerging Equity Fund 23,224 6.07 25.65 24.83 14.32 17.69 24.07 0.26
Nippon India Growth Fund 13,861 6.14 25.25 24.59 13.26 16.05 24.63 0.26
UTI Mid Cap Fund 7,345 -0.69 19.97 24.56 10.97 13.97 23.58 0.26
Nifty Midcap 150 - TRI 3.71 23.87 24.46 11.49 15.92 25.93 0.25
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on January 03, 2022
(Source: ACE MF)
*Please note, this table only represents the best-performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully. Past performance is not an indicator of future returns. The percentage returns shown are only for indicative purposes.
 

SBI Magnum Midcap Fund was once a top-performing midcap fund that went through a bad phase and recorded a prolonged underperformance. However, it has shown a significant recovery in performance in the last couple of years. In the last 2-year and 3-year time periods, SBI Magnum Midcap Fund has outperformed the benchmark Nifty Midcap 150 - TRI by a margin of around 1.5-3 percentage points and also outpaced most of its peers. Over the longer time period of 5 years and 7 years, the fund has managed to generate returns nearly at par with the category average.

The volatility registered by the fund is slightly higher than the category average, though lower than the benchmark. SBI Magnum Midcap Fund has rewarded investors with noteworthy risk-adjusted returns. The fund's Sharpe ratio (0.28) is currently the best in the category and far ahead of the benchmark.

SBI Magnum Midcap Fund: Focusing on High Conviction Mid-cap Stocks 
Image source: www.freepik.com - photo created by master1305
 

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Investment strategy of SBI Magnum Midcap Fund

SBI Magnum Midcap Fund is a mid-cap fund that is mandated to invest at least 65% of its assets in equity and equity-related instruments of mid-sized companies. SEBI defines mid-cap stocks as companies ranking 101st to 250th in terms of full market capitalisation. The fund also has significant exposure to stocks in the small-cap segment along with minor allocation in stocks of large-sized companies. SBI Magnum Midcap Fund follows a blend of growth and value styles of investing. It follows a bottom-up approach to stock-picking in order to choose high-growth companies across sectors.

SBI Magnum Midcap Fund aims to focus on fundamentally sound companies that have solid management and sound business models and those that have the potential to grow and become leaders of tomorrow. The fund manager aims to create a diversified portfolio and holds each of stock holding with high conviction. It usually stays invested in around 60-65 stocks at any point in time and holds them with a long-term view. The fund follows a buy-and-hold approach; accordingly, it has recorded a low turnover rate of 10-30% in recent months.

Graph 2: Top portfolio holdings in SBI Magnum Midcap Fund

Graph 2 Graph 2
Holding in (%) as of November 30, 2022
(Source: ACE MF)
 

SBI Magnum Midcap Fund's portfolio is usually diversified across 60 to 65 stocks spread across sectors. As of November 30, 2022, the fund held 60 stocks in its portfolio, with the top 10 stocks accounting for around 37.9% of its total assets. Page Industries, Tube Investments of India, CRISIL, Sheela Foam, and Schaeffler India are the stocks that currently form part of the fund's top holdings. Some of these stocks have been part of the fund's portfolio for over 2 years now.

The fund has benefited the most from its holdings in Cholamandalam Investment & Finance Co., Carborundum Universal, Schaeffler India, Sheela Foam, Page Industries, Happiest Minds Technologies, and Thermax that contributed over 30% to its absolute gains in the last two years.

SBI Magnum Midcap Fund's portfolio is well-diversified across Cyclical, Defensive, and Sensitive sectors. The fund holds higher exposure to stocks in the Engineering, Financial, and Consumer Durables sectors that collectively form 42.4% of its assets. It also holds substantial exposure to Textile, Auto Ancillaries, Cement, Construction, and Consumption having allocation in the range of 4-7%.

 

Suitability

SBI Magnum Midcap Fund holds a long-term track record of nearly 18 years, during which it has witnessed bouts of outperformance as well as underperformance. The fund stands out for its ability to stem losses during the bearish phase, wherein it has managed to outpace the benchmark as well as many of its peers. However, SBI Magnum Midcap Fund is not a great bull market performer and may underperform the benchmark and many of its peers. Despite facing bouts of underperformance, SBI Magnum Midcap Fund has managed to perform well over complete market cycles and reward investors for their patience.

The fund has shown strong growth in performance in the last couple of years to recover past losses and find a place among the top performers in the Mid Cap Fund category. Despite facing bouts of underperformance, SBI Magnum Midcap Fund has managed to perform well over complete market cycles and reward investors for their patience.

SBI Magnum Midcap Fund is suitable for aggressive investors looking to benefit from the market leaders of tomorrow over an investment horizon of at least 5 to 7 years.


​Warm Regards,
Divya Grover
Research Analyst


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.

 

DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014

About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of the second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

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There are no outstanding litigations against the Company, its subsidiaries and its Directors.

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  1. Money Simplified Services Private Limited;

  2. PersonalFN Insurance Services India Private Limited;

  3. Equitymaster Agora Research Private Limited;

  4. Common Sense Living Private Limited;

  5. Quantum Advisors Private Limited;

  6. Quantum Asset Management Company Private Limited;

  7. HelpYourNGO.com India Private Limited;

  8. HelpYourNGO Foundation;

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  10. Primary Real Estate Advisors Private Limited;

  11. HYNGO India Private Limited;

  12. Suresh Lulla;

  13. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest
  1. ‘subject company’ is a scheme on which a buy/sell/hold view or target price is given/changed in this Research Report;

  2. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company;

  3. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report;

  4. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However, any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront / annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices.

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