Since 2008, when the equity markets started declining, the midcap indices have fallen more than the large cap indices. This decline typifies the relatively higher risk associated with midcap stocks. Midcap funds therefore are lagging behind the other equity funds that have more fluid style of investment.

HSBC Midcap’s investment proposition
Launched in May 2005, HSBC Midcap Equity Fund (HMEF) is an open-ended diversified equity fund from HSBC Mutual Fund. The fund is benchmarked against BSE Midcap and is mandated to invest 65%-100% in BSE Midcap stocks whose market capitalization is Rs 750 m or more but less than that of largest constituent of the Index. It can invest upto 35% in stocks from outside this universe, debt and money market instruments.

How HSBC Midcap fares vis-à-vis peers

	6-Mth (%)	1-Yr (%)	2-Yr (%)	3-Yr (%)	Std. Dev. (%)	Sharpe Ratio
Sundaram Select Midcap (G)	-46.3	-54.2	-23.8	-9.7	8.90	-0.14
Magnum Global (G)	-52.8	-62.7	-32.8	-17.1	9.40	-0.21
Kotak Midcap (G)	-45.6	-56.4	-28.1	-17.9	9.00	-0.18
HSBC Midcap Equity (G)	-47.5	-59.0	-28.9	-18.5	9.10	-0.19
ICICI Pru. Emerging S T A R (G)	-53.8	-64.5	-32.6	-18.9	9.70	-0.20
BSE Midcap	-54.6	-63.9	-30.3	-18.6

(Source: Crisil Investment Manager. NAV data as on March 04, 2009.)
(Standard Deviation and Sharpe ratio is calculated over 2-Yr period. Sharpe Ratio is a measure of the returns offered by the fund vis-à-vis those offered by a risk-free instrument)

Over 3-Yr, HMEF has posted a loss of 18.5% (in CAGR terms); it has been a laggard compared to the entire peer group with the exception of ICICI Pru. Emerging STAR (-18.9%). The fund has matched its benchmark index i.e. BSE Midcap (-18.6%) over this time frame.

 

Volatility
Standard Deviation measures the risk that the fund has exposed its investors to. HMEF (9.10%) has delivered an average showing on this parameter vis-à-vis peers. Sundaram Select Midcap (8.90%) fares the best, while ICICI Pru. Emerging STAR (9.70%) fares the worst in the peer group.

 

Risk-adjusted return
Sharpe Ratio measures the returns delivered by the fund, per unit of risk borne. Funds across the board languish in negative terrain. HMEF (Sharpe Ratio -0.19) has delivered a modest performance on this parameter as well. Among peers, Sundaram Select Midcap (-0.14) fares the best, while Magnum Global (-0.21) fares the worst.

 

As can be seen in the graph above, Rs 100 invested in HMEF 3 years ago (February 2006) would be worth Rs 53 at present. Similarly, an investment in its benchmark index would have yielded the same.

In a nutshell…
It can be safely concluded that the fund fails to distinguish itself on any parameter vis-à-vis peers.

What should investors do?
Now the question is, should investors consider investing in the fund? That would ideally depend on their risk appetite, investment objective and existing portfolio, among a host of other factors. At Personalfn, we have always maintained that a ‘one size fits all’ approach doesn’t work while investing. An investment avenue that is apt for one investor could be grossly unsuitable for another. Therefore, investors would do well to consult their investment advisors/financial planners to determine the suitability of HMEF in their portfolios.

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