Midcap MFs: Concentrated portfolio of up to 50 stocks outperformed other schemes, says Moneyfront

In Midcap Fund X-Ray, Mohit Gang, CEO and co-founder of Moneyfront explained the ways to find out if one’s fund is running a concentrated strategy or a lazy strategy of buying every stock that shows some potential and how much this affects the performance.

"Securities and Exchange Board of India's (Sebi) definition of a midcap fund is from 101st company to 250th company in terms of market capitalisation. There is a universe of around 150 stocks from which a fund manager needs to pick his choices. If a fund manager is going for around 70-90 stocks in a portfolio from 150 stock universe, he is virtually picking two out of every three stocks available. So there is no significant amount of research which is going on there,” he said.

"Fund managers who are stuck around with a concentrated portfolio of upto 50 stocks, they have outperformed all other fund managers and especially the fund managers who have taken 70 plus stocks in the portfolios are the ones who have suffered because the tail has become too fat to manage,” he added.

"As the fund grows over size, if the AUM becomes too large, the fund managers have limited choices available and they will have to buy more stocks in the portfolio to allocate their corpus. However, investors who have invested need to keep checking their portfolios on various matrices and concentration risk is one such metric which every year or two-three years once needs to evaluate in the portfolio whether the scheme is ending in too much of diversification in terms of buying lot many stocks in the portfolio. If that is not adding to material difference or returns of the scheme then one needs to take a conscious call out there," he pointed out.