• Maheswaran Hariharan

AssetPlus NFO Review: JM Mid Cap Fund

JM Financial Mutual Fund House is launching an NFO, which is open for subscription from Oct 31st, 2022, and closes on November 14th, 2022.


Investment Objective: To generate wealth over the long term, suitable for investors having a high-risk appetite who are comfortable with notional losses in the short term for long-term growth.


Investment Strategy: The fund emphasizes on Nifty Midcap 150 Index(Listed stocks on NSE from 101 to 200). The fund will invest at least 65% of its portfolio in Midcap stocks, and the remaining 35% can be in any other Equity market cap/Debt Instruments. The focus is to create returns that can outperform the benchmark by active fund management. The portfolio is diversified across various sectors in midcaps, and JM, as an AMC, is highly process-driven, emphasizing an internal model known as GeeQ(Growth of Earnings and Earnings Quality) to deliver strong portfolio performance.


Fund Manager: Satish Ramanathan and Chaitanya Choksi


Benchmark: Nifty Midcap 150 TRI


Fund Management Process:

  1. The Fund follows active management, expecting to generate alpha over the long term.

  2. The selection criteria are majorly from Nifty Midcap 100.

  3. The fund follows a unique in-house model known as GeeQ for stock selection which emphasizes on:

  4. Growth of earnings - EPS(Earnings per share), PEG(Price to Earnings Growth), and Opportunity size of each company

  5. Earnings Quality - ROE(Return on Equity), OCF(Operating Cash Flow), ROIC(Return on Invested Capital), and Debt/Equity Ratio

  6. Cash calls will be limited, with 90% of the portfolio always being invested in securities.

  7. There will always be a minimum of 30 stocks and capped at a maximum of 50 stocks.

  8. The fund will undergo active re-balancing based on valuations and market opportunities.

Opportunity:


Midcaps historically have been a strong component of India’s growth story. They are more volatile than the large caps but less volatile than the small caps.


Data as on September 30,2022 Source : Ace MF, JM MF Research

Midcaps, traditionally more volatile than the large caps in the short run, also deliver much higher returns if held for the medium to long run (5+ years).



The current scenario for mid-caps looks favorable as they have just now come out of a bear market phase. Historically, there have been remarkable periods of returns when they exit a bear market and charge into bull mode.


Based on our analysis, we have observed the following pros and cons


Pros:

  1. Focuses on companies that have the potential to become large-caps.

  2. Process-driven and internalized modeled approach

  3. Completely Sector Agnostic.

  4. Active fund management having the ability to generate superior returns.

  5. Growth Story of India fuelled by this segment

Cons:

  1. Mostly limited to just Nifty Midcap 150 Universe

  2. Can underperform for relatively medium periods of time

  3. Higher levels of drawdowns when compared to Large-caps

This fund is backed by able fund management. However, the mutual fund house is relatively small and lesser known when compared to many established names in this business. There is a proper filter used in selecting midcap stocks as each. Each of them is included in a specific proportion, which also makes it a risky bet but also provides an opportunity for higher returns.


History has repeatedly shown us that Midcaps as a category have the potential to generate much better returns than Largecaps but, at the same time, have faced the brunt of slowdowns and severe crashes.


It is of utmost importance that the fund should be discussed with your financial expert and then ascertain whether it is suitable to invest. Always read the scheme documents fully before investing.


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