Many investors like the stability of large-cap stocks, while some prefer the high-risk, high-return potential of small companies. In between are the mid-cap stocks, the “Goldilocks” of investing. While numerous studies have shown that small-cap stocks outperform the large-caps over the long run, data reveals that mid-caps are the winners.
In the last 10 years, mid-cap indices have outshined small-cap indices. The BSE 150 Midcap-TRI index has outperformed the BSE Small cap-TRI index by 2.13 per cent at 21.32 per cent compounded annual returns compared to 19.18 per cent, respectively.
If you are a Goldilocks investor looking for better returns with higher stability, Motilal Oswal Midcap Fund could be a decent choice. It is a new entrant in OLM50, Outlook Money’s list of recommended mutual funds.
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Portfolio
The fund follows an in-house quality, growth, longevity, and price framework to identify winning stocks in the mid-cap space. This approach entails investing in high-quality companies with strong growth potential, acquired at reasonable valuations. The fund targets companies with significant market opportunities.
“Our focus is on companies exhibiting significant growth, characterised by a return on capital employed and return on equity exceeding 20 per cent, strong free cash flow generation, and rigorous corporate governance standards,” says Niket Shah, fund manager, Motilal Oswal Mutual Fund. He says the “coming five years in India will present numerous emerging investment themes”, such as mobile component manufacturing, electric vehicle, and renewable energy, which will benefit the fund.
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Performance
The fund has given 63 per cent returns in one year. It has beaten both the benchmark and the category average returns in one-year, three-year and five-year periods.
OLM Take
As the fund has been a steady performer in the mid-cap space over the years, you may consider including it in your portfolio.
kundan@outlookindia.com