Fund of Fortnight
This is our mutual fund recommendation. Every fortnight , we recommend one open-ended equity diversified fund that has the best potential of returns for the next one year considering its constituents remain the same.
SBI Magnum Midcap Fund
Reason for recommendation
The fortune of investors investing in the broader market seems to be finally turning around. This is reflected in the performance of equity indices dedicated to them. After a huge underperformance compared to large-cap indices since the start of year 2018, their performance has improved over the past few months. In the last six months they have generated returns in double digits. The funds dedicated to such caps have also performed in line with the indices. Going ahead, the outperformance is likely to continue as economic activity picks up. SBI Magnum Midcap Fund is a mid-cap dedicated fund but has more than 90 per cent exposure to the broader market i.e. mid and small-cap stocks, compared to average of 78 per cent held by the category. At the end of January 2020, the fund had 71 per cent invested in mid-cap stocks and 23 per cent in small-cap stocks. What will also act in favour of the fund is its well-diversified portfolio of 45 stocks that is overweight on sectors that are likely to perform in the near future. For example, it has higher weightage on sectors such as construction, chemicals and healthcare compared to its category average. Besides, it is underweight on themes such as financials and FMCG that have already played out.
The presence of companies such as PI Industries, an agri-sciences company, with the largest weight in the fund will be of benefit since the company stands to gain from China’s greener initiatives and the fallout of the corona virus. Besides, the fund also holds companies such as Godrej Properties and GSPL in its top five holdings, which are likely to outperform the market going ahead. Since the fund is dedicated to mid-cap stocks, the fund is suitable for aggressive investors with an investment horizon of three to five years.
