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Flashes of Brilliance

In its short history HSBC Midcap Equity has performed well only in patches. It has a tendency to fall a lot more in bear phases

In its rather short performance history, HSBC Midcap has displayed flashes of brilliance. In the first quarter (July-September 2005) of its operation, the fund delivered a cool 34.37 per cent as against the category average of 24 per cent. What's more, the fund showed no signs of slackening, and quarter after quarter it did a good job of staying above the category average. But the real test came in May-June 2006, when the going got tough for equity markets. All hell broke loose, the fund's NAV plummeted, total damage amounted to (-) 22 per cent as against the category losing (-) 13.6 per cent. While the fund bounced back in the following quarters, the March 2007 quarter (January - March) was again disastrous, the fund lost (-) 8 per cent, at a time when the category regressed by 6 per cent.

While the fund aspires to maintain a blend focus, one often finds it steering towards predominantly growth oriented picks. One also finds a significant exposure to small cap companies, which can be as high as 59 per cent.

The portfolio is significantly diversified. Almost every sector has a respectable representation in the portfolio. This in turn has given the management more leeway to move between sectors, and this is exactly what one finds, the sector allocation is churned actively. This is just as well, because more concentrated bets would land the fund into trouble, especially since it functions in an already volatile mid cap space.

A worrisome trend is the fund's inability to come on top in a falling market. So far the fund does eventually make up for the losses incurred in a bearish market. As a result of this tendency the fund is suitable only for a long-term investor, who will not panic in case of a market correction.