Well-Suited for the Long Haul

If one goes by the textbook definition, then large-cap mutual funds are those that invest only in large-cap stocks. In reality, barring a few exceptions, identifying large-cap funds is not easy. This is owing to different interpretations of what is a large-cap stock (different investors go by different definitions). Varying market conditions add to the confusion: in a falling market even some mid- & small-cap funds turn into large-cap funds. Then there could be ambiguity about the nature of a particular fund: for instance, is a fund with a small exposure to mid- and small-cap stocks a large-cap fund or a multi-cap fund? At Value Research we looked at the half-yearly portfolios of equity funds for the past three years and identified large-cap funds as those that invest 80 per cent or more of their assets in large-cap stocks. (We define large-cap stocks as those largest market-cap stocks that together account for 70 per cent of total market capitalisation). Based on this definition, we got a selection of 50 funds, which includes 33 rated funds and 17 unrated ones. Apt for core holding As we have discussed earlier also, the core of your portfolio should be comprised of investments that can hold their ground regardless of the direction of the markets. If you are investing in equity, then your portfolio cannot obviously be market neutral. But over the years large-cap funds have proven themselves to be far better protectors of downside risk t

This article was originally published on December 20, 2010.