Micro, small-cap oriented funds outshine in bull market
Moneylife Digital Team 14 April 2010

In a clear sign that we are in an extended bull market, funds with predominant exposure to growth stocks have outperformed the rest by a huge margin

When mutual funds with a predominant focus on growth stocks like micro, small and mid-cap stocks completely outshine funds with a large-cap bias, one can be certain that the bulls are out in full force in the stock markets.

Moneylife ran a study on the performance of equity-diversified funds between December quarter of last year and March quarter of this year. It is interesting to note that seven out of the top ten performing funds have a bias towards growth stocks, that is, micro, small or mid-cap stocks.

DSP BlackRock Micro Cap Fund emerged the top performer, with absolute returns of 13% compared to its benchmark (BSE Small Cap) returns of 2%. Religare Mid N Small Cap Fund (up 9%) and ICICI Emerging STAR Fund (up 8%) are the next best performers, beating their respective benchmarks (CNX Mid Cap and CNX Nifty Junior), which returned 4% each.

Canara Robeco FORCE Fund is also among the top performers, with returns of 8% over this period, compared to its benchmark’s (S&P Nifty) returns of 1%. The other growth-stock oriented funds in the top ten include IDFC Small and Mid Cap Equity Fund, ICICI Prudential Discovery Fund (up 7% each) and Religare Mid Cap Fund (up 6%).

It is only during an extended rally that small and micro-cap stocks exhibit such stellar performance. The moment the market’s fortunes take a turn for the worse, these very stocks are beaten down the most. The very same funds will then exhibit a different performance altogether. As such, it is important that their current run is not extrapolated too much. Any signs of weakness in the markets should be enough to throw these stocks out of gear.

Among the worst performing funds, JM has taken the cake by throwing up the worst five performing funds in the equity diversified space. All these funds have underperformed their respective benchmarks. These include the JM Emerging Leaders Fund (-6%), JM Core 11 Fund (-5%), JM Small & Mid Cap Fund (-5%), JM Mid Cap Fund (-5%) and JM Multi Strategy Fund (-5%).

These underperformers are followed by the Reliance Natural Resources Fund, which is actually a sector fund, concentrating on companies engaged in discovery, development, production and distribution of natural resources. It has given returns of -3%, compared to its benchmark’s (BSE 200) returns of 1%. Bharti AXA Equity Fund, Taurus Bonanza Fund and Sundaram BNP Paribas SMILE Fund have also witnessed similar underperformance.

Comments
aniruddha naha
1 decade ago
Hi,

I went through your article. I would like to know how these funds have performed on a 2 year and 3 year period basis, which would include periods when the markets were really weak?
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