Consumer Durables News

Identifying Quality Stocks in the Midcap Segment


Dec 29, 2022

Reading Time: 10 min





Listen to PGIM India Midcap Opportunities Fund: Identifying Quality Stocks in the Midcap Segment




00:00 00:00







Mid Cap Mutual Funds offer you the opportunity to create significant long-term wealth. Historical data suggests that Mid Cap Mutual Funds have the ability to outperform Large Cap Mutual Funds over the long term.

If you carefully select Mid Cap Funds for your portfolio, you can reap high returns that will help you address long-term goals such as Children’s education/marriage, your retirement, buying your dream home, etc.

PGIM India Midcap Opportunities Fund is a well-managed Midcap Fund that has turned out to be one of the top performers in the category by focusing on quality stocks in the mid-cap segment.

Graph 1: Growth of Rs 10,000 if invested in PGIM India Midcap Opportunities Fund 5 years ago


PGIM India Midcap Opportunities Fund is a growth-oriented mid-cap biased fund that aims to offer greater growth potential as compared to large caps but at a lower volatility and risk as compared to small caps. While selecting stocks, PGIM India Midcap Opportunities Fund considers valuation as well as growth parameters such as margins, asset returns, and cash flows, amongst others. Launched in December 2013, the fund remained among the underperformers in its first 5 years. However, with a focus on high-quality stocks, it recorded a major breakthrough run in recent years. During the market crash in 2020, the fund stood among the category outperformers. Moreover, the fund participated well in the ensuing recovery and bull phase and turned out to be one of the top performers, not only in the Mid-cap Fund category but across diversified equity funds. With the extraordinary performance recorded in the last few years, PGIM India Midcap Opportunities Fund has shown a remarkable improvement in its performance across time periods. Over the past 5 years, PGIM India Midcap Opportunities Fund has rewarded investors with a CAGR of around 17.8%, as against the 11.2% CAGR delivered by its benchmark Nifty Midcap 150 – TRI index. An investment of Rs 10,000 in PGIM India Midcap Opportunities Fund five years back would have now appreciated to Rs 22,669.

Graph 1
Past performance is not an indicator of future returns

Data as on December 27, 2022

(Source: ACE MF)

 

Table: PGIM India Midcap Opportunities 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 20.05 35.64 37.90 20.70 18.48 24.38 0.37
PGIM India Midcap Opp Fund 7,577 2.64 30.31 36.24 17.77 17.56 24.42 0.38
SBI Magnum Midcap Fund 8,436 5.86 27.24 27.91 11.87 14.17 24.80 0.28
Edelweiss Mid Cap Fund 2,478 5.13 26.29 26.46 13.19 16.48 24.70 0.28
Mirae Asset Midcap Fund 8,953 7.66 26.80 26.04 24.50 0.27
Kotak Emerging Equity Fund 23,224 8.51 26.54 25.19 14.11 17.76 24.04 0.27
Motilal Oswal Midcap Fund 3,657 13.06 33.47 24.86 13.89 15.36 25.15 0.26
HDFC Mid-Cap Opportunities Fund 36,158 14.82 26.45 24.70 12.03 16.08 24.33 0.26
UTI Mid Cap Fund 7,345 2.60 21.03 24.65 11.05 14.04 23.54 0.27
Nippon India Growth Fund 13,861 8.38 25.90 24.57 13.36 16.06 24.60 0.26
Nifty Midcap 150 – TRI 5.44 24.41 24.39 11.20 15.98 25.91 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 December 27, 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.

 

PGIM India Midcap Opportunities Fund has registered superior performance in the last few years and has managed to generate an alpha of around 6% to 12% CAGR over its benchmark Nifty Midcap 150 – TRI Index. The recent outperformance has also helped the fund improve its long-term performance as well and has managed to generate a significant lead over the category average and the benchmark across time periods. On a longer time periods of 5-year and 7-year, the fund has a clear lead over its benchmark and the category average.

On risk-return parameters, PGIM India Midcap Opportunities Fund has encountered higher volatility (24.42%) when compared to some of its category peers but is still much lower than the benchmark. The fund’s superior outperformance over the last few years has helped it generate higher risk-adjusted returns for investors. Its Sharpe (0.38) is currently the highest in the Mid-cap Funds category, thus rewarding investors with superior risk-adjusted returns.

PGIM India Midcap Opportunities Fund: Identifying Quality Stocks in the Midcap Segment

Image source: www.freepik.com – photo created by master1305

 

Join Now: PersonalFN is now on Telegram. Join FREE Today to get ‘Daily Wealth Letter’ and Exclusive Updates on Mutual Funds

 

Investment strategy of PGIM India Midcap Opportunities Fund

PGIM India Midcap Opportunities Fund is a midcap fund that is mandated to invest a minimum of 65% of its assets in mid-cap stocks (defined as stocks between 101 to 250 ranked as per market capitalisation). The fund looks to identify quality midcap stocks which can benefit from a favourable economic environment based on extensive research and a thorough selection process.

PGIM India Midcap Opportunities Fund follows a combination of the top-down and bottom-up approach to select quality mid-cap stocks across sectors. While selecting stocks the fund managers look at the current and historical financial condition of the company, potential value creation/unlocking of value and its impact on earnings growth, capital structure, business prospects, policy environment, the strength of management, responsiveness to business conditions, product profile, brand equity, market share, competitive edge, research, technological know-how, and corporate governance.

The fund holds top 40%-45% of its portfolio in ‘Stable Growth’, i.e. companies with stable earnings and strong earnings visibility (of 14-16%); mid 40%-45% of the portfolio is in ‘High Growth’ stocks, i.e. companies with strong earnings growth (of above 20%); and bottom 10%-20% of the portfolio in ‘Turnaround’ stocks, i.e. Turn around stories and good companies going through bad times with significant potential for alpha generation.

Graph 2: Top portfolio holdings in PGIM India Midcap Opportunities Fund





Graph 2 Graph 2


Holding in (%) as of November 30, 2022

(Source: ACE MF)

PGIM India Midcap Opportunities Fund invests in a well-diversified portfolio of 50-55 stocks, limiting exposure to single stocks within the 5% mark. As of November 30, 2022, PGIM India Midcap Opportunities Fund held a fairly diversified portfolio of 47 stocks. The top-10 stocks accounted for around 33.6% of its assets, with names like Timken India, HDFC Bank, ICICI Bank, Cummins India, Kajaria Ceramics, Bata India, and Dalmia Bharat among its top 10 holdings. Although the fund follows a buy-and-hold investment strategy, it is nimble in its approach. It does not hesitate to churn a small portion of its portfolio to capture attractive opportunities in the mid-cap segment.

In the last one year, PGIM India Midcap Opportunities Fund has gained immensely from its holding in Timken India, Varun Beverages, Cummins India, The Federal Bank, ABB India, The Indian Hotels Company, ICICI Bank, TVS Motor Company, Canara Bank, Ashok Leyland, SKF India, among others.

PGIM India Midcap Opportunities Fund is benchmark agnostic, holding a low overlap of 30%-35% with the benchmark and is overweight on sectors which are currently underbought. In terms of sector holdings, its portfolio is majorly exposed to Banking & Finance, Engineering, and Consumption, that collectively account for 45.1% of its assets. The fund’s other core sectors include Construction, Consumer Durables, Pharma, Chemicals, Infotech, Auto, Retail, and Transportation, among others.

Suitability

PGIM India Midcap Opportunities Fund’s performance is driven by prudent investment strategies and backed by strong systems and processes followed at the fund house. The fund has shown a turnaround performance in the last few years and has showcased its potential to generate market-beating returns in the long run at a reasonable risk.

As PGIM India Midcap Opportunities Fund is benchmark agnostic, the investments in stocks shortlisted using various parameters are typically made at the conviction of the fund manager, irrespective of their weightage in the index. Certainly, the performance of the fund may deviate significantly from the benchmark. Even though PGIM India Midcap Opportunities Fund follows an active investment strategy and has a penchant to churn a major portion of its portfolio, it has shown a lot of patience with many of its quality stocks and sectorial bets, which have paid off its investors in due course. Such an approach may work in favour of the fund in the long run.

PGIM India Midcap Opportunities Fund is suitable for investors with a high-risk appetite looking for an actively managed Mid-cap Fund with an investment horizon of at least 5-7 years.

 

Warm Regards,

Divya Grover

Research Analyst

 

PS:  If you are looking for quality mutual fund schemes (including Equity-linked Saving Schemes) to add to your investment portfolio, I suggest you subscribe to PersonalFN’s premium research service, FundSelect. PersonalFN’s FundSelect service provides insightful and practical guidance on which mutual fund schemes to Buy, Hold, and Sell.

Currently, with the subscription to FundSelect, you could also get Free Bonus access to PersonalFN’s Debt Fund recommendation service  DebtSelect.

If you are serious about investing in a rewarding mutual fund scheme, subscribe now!

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.

Disciplinary history

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

Terms and condition on which its offer research report

For the terms and condition for research report click here.

Details of associates

  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;

  9. Natural Streets for Performing Arts Foundation;

  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.

Disclosure with regard to receipt of Compensation
 

  1. Neither QIS nor it’s Associates have received any compensation from the subject Company in the past twelve months;

  2. Neither QIS nor it’s Associates have managed or co-managed public offering of securities for the subject Company;

  3. Neither QIS nor it’s Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company;

  4. Neither QIS nor it’s Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

  5. Neither QIS nor it’s Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

General disclosure

  1. The Research Analyst has not served as an officer, director or employee of the subject Company.

  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

Click here to read PersonalFN’s Mutual Fund Rating Methodology

Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. & Corp. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai – 400 021

Email:info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222 SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013



Source link