NFO Analysis: HSBC Mid Cap Fund

HSBC Mutual Fund after a long hiatus has come out with a new fund offer (NFO). The fund house has launched HSBC Mid Cap Fund. This scheme started its subscription on September 6 2021 and will end on September 20 2021. The fund is categorized under the mid-cap category, which will invest primarily in mid-cap stocks that have a market cap ranking between 101 and 250.

Objective: The fund’s objective is to generate long-term capital growth from an actively managed portfolio of equity and equity-related securities of predominantly mid-cap companies. The asset allocation pattern of the scheme under normal circumstances would be a minimum of 65 per cent in equity which can go up to 100 per cent. While in debt instruments such as CP, commercial bills, Corporate Debt, T-Bills etc, will not exceed 35 per cent. The fund can also invest up to 10 per cent in units issued by REITs and InvITs.

Strategy: The fund will apply a mix of a top-down and bottom-up approach to invest in equity and equity-related instruments. Investments will be based on the Investment Team’s analysis of business cycles, regulatory reforms, competitive advantage etc. The fund manager while selecting stocks will focus on the fundamentals of the business including profitability, the industry structure, the quality of management, sensitivity to economic factors, the financial strength of the company, valuation and the key earnings drivers.

The investment approach of the fund will be based on these 4Qs:

1. Quality of Business: Scalability of business, Competitive Advantage, Market Share, Longevity, Pricing power, Brand strength

2. Quality of Management: Track record, Corporate governance, Promoter background, Capital allocation

3. Quality of Earnings: Consistency in earnings, Capital intensity, Cashflow

4. Quantum of Earning: Strong growth in earnings

Fund Manager: The Scheme will be managed by Ankur Arora, Senior Vice President & Fund Manager – Equities at HSBC Asset Management (India). Before this, he was Vice President – Investments at Aegon Life Insurance. Besides this, the fund manager also manages HSBC Small Cap Equity Fund since August 2019.

Our Recommendation: There are already 30 equity dedicated funds in the mid-cap category. On average, these funds have generated a return of 68.8 per cent in the last year ending September 13, 2021. The Nifty mid-cap index generated a return of 73 per cent in the same period. 10 funds gave a return more than its benchmark. Hence, we believe there are better options available with the investors if they want to take exposure to mid-cap dedicated funds.

Besides, another fund managed by the fund manager has not shown any exceptional performance. HSBC Small Cap Equity Fund ranks in middle (12 out of 24) in the last one year and 8 out of 14 in the last three-year period.

Top 10 Mid-cap funds based on last one-year return.