Religare Invesco Mid N Small Cap Fund

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Religare Invesco Mid N Small Cap Fund is a mid- and small-cap fund with Rs. 27 crore assets under management. The fund was launched in January 2008. It is benchmarked against the CNX Midcap Index.

PERFORMANCE

The fund's performance is impressive in the last one-, three- and five-year periods on a relative scale. It has beaten its benchmark as well as the equity diversified category average in all these periods. In terms of returns since inception the fund has outperformed CNX Midcap by 9.36% in CAGR terms – which is significant.

			1 YEAR		3 YEARS		5 YEARS		SINCE INCEPTION
Religare Invesco Mid N Small Cap Fund		0.67		0.34		10.75		7.38
CNX Midcap		-6.74		-8.77		2.94		-1.98
Average		-0.62		-2.21		5.7		--
Rank		66/145		41/136		11/116		--

Figures are in % as on August 31, 2013; Returns above 1-year in Compounded Annual Growth Rate (CAGR)

The fund has outperformed the equity diversified category average in all four calendar years of its existence, by good margins. 2009 was the only year in which it failed to beat CNX Midcap. In 2013 mid-cap stocks have taken a beating which has had an impact on its year-to-date return. However, it has managed to outperform its benchmark by 7 per cent year-to-date.

			2009		2010		2011		2012		YTD
RI-Mid N Small Cap Fund*		93.64		34.69		-19.24		43.88		-15.42
CNX Midcap		94.85		19.16		-30.99		39.16		-22.52
Category Average		83.87		19.39		-24.29		34.31		-13.62
Rank		41/126		2/134		21/141		27/145		97/146

All figures in % ; * Religare Invesco Mid N Small Cap Fund

In terms of SIP (Systematic Investment Plan) performance the fund has given a return of 17% measured using internal rate of return (XIRR) in the 5-year period (as on July 31, 2013). The 3-year XIRR return is 7%.

The monthly performance of the fund indicates that except for April and August, the fund has beaten its benchmark in all the months of calendar year 2013. It has failed to outperform the category average in all the months except for May, due to the poor performance of mid caps this year.

			13-Mar		13-Apr		13-May		13-Jun		13-Jul		13-Aug
RI-Mid N Small Cap Fund*		-2.49		3.34		3.05		-3.95		-6.46		-3.8
CNX Midcap		-2.9		4.43		0.04		-6.13		-8.5		-2.77
Category Average		-1.52		3.89		0.41		-3.41		-3.04		-3.43
Rank		92/150		82/150		12/150		112/150		132/150		78/150

*Religare Invesco Mid N Small Cap Fund

Risk and Risk-adjusted Returns. Standard Deviation and Beta (measured over last three years) indicate that the fund has a lower risk level compared to the equity diversified category median. Treynor and Sharpe Ratios (measured over last three years) show that the fund gives higher return for the risks taken compared to the equity diversified category.

			Standard Deviation		Beta		Treynor Ratio		Sharpe Ratio
Religare Invesco Mid N Small Cap Fund		0.8146		0.5933		0.0029		0.005
Category Median		0.9557		0.8193		-0.0091		-0.0059

Expense Ratio. The fund's expense ratio is 2.95 per cent, which is 38 basis points higher than the category median of 2.58 per cent.

PROCESSES

The day-to-day investment decisions are taken by the fund manager. The fund has a mandate to invest a minimum 65% of its assets into mid-cap companies, the exposure being capped at 95%. The small cap companies' allocation can be between 5 to 35%. A maximum of 30% can be invested in debt instruments. Mid cap companies are defined as those whose market capitalisation is more than the last stock of CNX Midcap and less than the highest market capitalisation constituent of CNX Midcap Index. Small cap companies are those which have a market capitalisation which lies between the least and the highest market capitalisation constituent of S&P BSE Small Cap Index. The fund has a bottom-up approach to stock selection. The market capitalisation is reviewed on a quarterly basis.

PORTFOLIO

The fund has 51 stocks in spite of a small portfolio of Rs. 27 crore - which is higher than the category median of 41 stocks. In 2008 and 2009 the fund used to run a more concentrated portfolio with an average of 28 stocks. The average number of holdings increased to 39 in 2010. From 2011 onwards the portfolio has held more than 50 stocks on an average.

The fund currently has 48% allocation to large cap stocks, 45% allocation to mid cap stocks and 7% allocation to cash (including CBLO). The large cap, mid cap, small cap and cash allocation has averaged 43%, 48%, 2% and 7% respectively since its inception in 2008. The highest cash allocation the fund has ever had was 19% in March 2009.

The top five sectors in the portfolio form 41% of the total portfolio, which is lower compared to the category median of 50%. These sectors (in descending order of exposure) are private banks, consumer food, pharmaceuticals, pesticides & agrochemicals and printing & publishing. Out of the 51 companies that the fund has invested in, there are 33 holdings which have been part of the portfolio in each of the last 12 months (August 2012 to July 2013). These 33 stocks together have accounted for 64-to-71 per cent of the portfolio.

Britannia Industries and Maruti Suzuki have been the top two holdings consistently. ING Vysya Bank, Torrent Pharmaceuticals, Jammu & Kashmir Bank and DB Corp have been other major holdings in the last one year. In March 2013 the fund started buying United Spirits which at present is among the top five holdings of the fund. The top five companies account for 22% of the fund portfolio, which is lower than the category median of 30%. The top 15 companies constitute 50% of the portfolio.

The investment allocation of the fund is 55% into cyclical stocks, 20% into defensives and 18% into services.

FUND MANAGER

Vinay Paharia has been managing the fund since December 2008. Prior to joining Religare, Vinay was an equity research analyst at DBS Cholamandalam AMC. Before joining DBO Cholamandalam, Vinay was an equity research analyst with KRC, a domestic broking house, as an analyst in the PMS division and as a sell side analyst with First Global. He has over 11 years of experience in equity markets. The fund's consistent track record speaks well of his skills as a fund manager. The other fund managed by his is Religare Invesco Mid Cap Fund, which has a decent performance record.

OUR VIEW

We have a positive view regarding the fund because of a good track record and good reward-to-risk ratio. However, it is too diversified with a small AUM which may prevent it from getting adequate benefits of favourable price movements. As the fund is positioned in the mid- and small-cap space, and it has a large exposure to cyclical stocks it should be made part of the mid-cap allocation of the overall portfolio based on the risk profile of the investor.

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