Active mid, small-cap funds look smart in this market correction

Active mid- and small-cap funds have demonstrated that when the going gets tough, the tough get going. Consider this: between March 2023 and September 2024, when the market was doing well, only 11 of 29 active mid-cap funds and 3 of 24 active small-cap funds were beating their benchmarks. But since the market's 10 per cent dip in late September 2024, the tables have turned dramatically: a remarkable 28 of 29 active mid-cap funds and 26 of 28 active small-cap funds have outperformed their respective mid- and small-cap benchmarks. What explains this dramatic turnaround? Let's look at what the numbers say. Dodging the downers We first identified the stocks that have fallen more than 15 per cent during the recent correction. Our analysis revealed that these heavily-falling stocks constituted 32.4 per cent of the mid-cap index and 28 per cent of the small-cap index. However, most active mid- and small-cap funds maintained significantly lower exposure to these stocks. Only two mid-cap funds, Quant and ITI , had higher exposure than their index. Playing it safe Active mid- and small-cap funds' exposure to stocks that fell over 15 per cent Fund name % of portfolio Mid-cap index 32.4 WhiteOak Capital Mid Cap 11.0 Kotak Emerging Equity 13.0 Motilal Oswal Midcap 13.4 Tata Midcap Growth 13.8 Baroda BNP Paribas Midcap 14.5 Small-cap index 28.0 Motilal Oswal Small Cap   7.6 SBI Small Cap   8.2 DSP Small Cap   8.3 HDFC Small Cap   8.9 LIC MF Small Cap   9.7 Quantum Small Cap   9.9 Kotak Small Cap 10.0