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Rewards Over Long-term

Sundaram Select Midcap’s performance in 2011 might have been average, but its long-term record is overwhelming

Don't let the average show of 2010 fool you. There are times when the fund may deliver a middle-of-the-road performance but when it does outperform, it overwhelms. Consider its return of 158 per cent in 2003 (category average: 131%), 61 per cent in 2006 (category average: 28%) and 115 per cent in 2009 (category average: 98%). In 2008, it shed 58 per cent (category average: -60%), despite going aggressively into cash and debt; it touched 33 per cent in November 2008. In 2011, the fund shed 23.67 per cent (category average: -25.19%).

While investors may be disappointed at the downside protection, a trait of this fund is that it's a pure mid-cap play. Ramanathan describes the fund as "a dynamic fund playing the mid- and small-cap spaces with a minimum 25 stocks and a cushion of up to 35 per cent in large caps". According to our definition of large caps, the fund has rarely exceeded 15 per cent in that space.

The fund defines a mid-cap stock as one whose market capitalization does not exceed the market capitalization of the 50th highest market capitalized stock listed on the NSE, sorted in descending order. This gives the fund manager a huge universe. Currently, the weighted average market capitalization of the fund's portfolio is around Rs 3,700 crore and the largest market capitalised stock is Idea Cellular (Rs 31,145 crore) while the lowest is Kirloskar Electric Co. (Rs 156 crore).

There has not been much stability at the helm. Between July 2002 and August 2007, the fund saw six fund manager changes, making it difficult to nail down its style. When Ramanathan took over in September 2007, he reduced the number of stocks from 82 to around 50 and no stock has an allocation of more than 6 per cent.

Where sector allocations are concerned, none account for more than 20 per cent of the portfolio. Currently, Services (15%) and Chemicals (11%) are the top sectors of the fund. "The focus in the mid-cap space will continue to be on well-run companies with growth prospects - organic and inorganic - at reasonable valuation levels. The portfolio stance is linked to what we perceive will be the significant opportunities over the next few years," says Ramanathan.

Ignore the average returns during a market slide and you will see that this fund is capable of rewarding investors handsomely over the long term.