Popular mid-cap funds struggle to keep pace with runaway benchmark
Nifty 150 Midcap index. Analysts and investment advisors say the inability to deploy the continuous flows into these schemes and increased exposure to blue chips, with valuations of mid-cap stocks remaining elevated, have led to the underperformance.
Data from Value research show that the actively-managed mid-cap fund category has generated an average return of 25.36% against the Nifty 150 Midcap index return of 27.08% over three years.
«With high inflows into mid-cap stocks over the last few years, market efficiency within mid-caps have improved a lot. This means that there is less room for active managers to find mispriced stocks and generate alpha,» says Kunal Valia, founder, Statlane, an investment advisory firm.
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Mid-cap funds saw net inflows of ₹24,440 crore in the last 12 months compared to ₹34,386 crore into small-cap schemes and ₹7287 crore into large-cap schemes.
Mid-cap funds need to hold at least 65% of their corpus in stocks ranked 101-250 by market capitalisation. The rest 35% is at the fund manager's discretion.
Analysts said fund managers also cut exposure to some of the overheated stocks in the mid-cap category, which have continued to run up, and stayed away from companies deemed to be of poor quality, contributing to the underperformance.
«Limitations in terms of ability to take exposure to some of the low quality stocks in mid-cap index besides managing large inflows in bull markets have
