Quant Mid Cap Fund vs. SBI Magnum Midcap Fund: Which One Should You Choose?
March 23, 2024 Mutual Fund
The mid-cap segment in 2024 presents a compelling opportunity for investors seeking long-term capital appreciation. The anticipated resurgence of the Indian economy bodes well for mid-cap companies, many of which are frontrunners in their specific sectors. This could translate to robust earnings growth and subsequent stock price appreciation.
However, navigating this space requires a cautious approach. Global economic uncertainties and rising interest rates pose potential challenges, and valuations in certain pockets of the mid-cap segment might be inflated. Here, actively managed funds can play a crucial role by identifying fundamentally strong mid-cap companies with sustainable growth prospects and reasonable valuations.
As we know, the Indian mid-cap segment comprises companies ranked between 101 and 250 in terms of market capitalization. This segment witnessed significant activity in 2023 and is expected to remain relevant in 2024.
In 2023, the mid-cap space significantly outperformed the broader market. Indices like the Nifty Midcap 150 witnessed returns close to 47%, compared to the Nifty 50’s performance of around 18%. This strong performance attracted significant investor interest. Mid-cap funds saw inflows of nearly Rs 23,000 crore in 2023, highlighting increased investor confidence.
However, the rapid rise in some mid-cap stocks also raised concerns about potential overvaluation and a correction. To address this concern and protect investor’s interests, the market regulator SEBI (Securities and Exchange Board of India) recently announced a review of rules for mid-cap and small-cap mutual funds.
[Read: Overheating Fears: SEBI Considers Reviewing Rules for Mid and Small-Cap Mutual Funds]
In comparison to 2023, the mid-cap market’s performance has been more muted as of February 2024. The bullish trend may or may not turn around in 2024, according to some experts, but the soaring valuations make it a case to be cautious.
Remember that no market cap can turn out to be a consistent winner every year. Sometimes large caps outperform, and other times it could be small caps. Investors in the mid-cap market may experience short-term losses if the cycle reverses. Therefore, it would be prudent to avoid short-term bets while investing in mid-cap funds and maintain a long-term perspective.
When navigating this exciting yet volatile landscape, choosing the right fund becomes paramount. Choosing the right mid-cap fund requires understanding a scheme’s approach, risk profile, and how it aligns with your investment goals. In my previous scheme comparison article – Find Your Mid-Cap Fit: HDFC Mid-Cap Opportunities Fund vs. Kotak Emerging Equity Fund I have given a comprehensive analysis of top mid-cap mutual funds.
In this article, the analysis compares Quant Mid Cap Fund and SBI Magnum Midcap Fund across key parameters to help you decide which mid-cap mutual fund is suitable for you.
Quant Mid Cap Fund is an open-ended equity scheme that belongs to Quant Mutual Fund. It is a well-established mid-cap mutual fund launched in February 2001 and currently has an AUM of Rs 5,421.74 crores (as of Feb 29, 2024).
The scheme aims to generate capital appreciation and provide long-term growth opportunities by investing in a portfolio of mid-cap companies. Quant Mid Cap Fund adopts a quantitative approach to select high-growth potential stocks based on the relevant market, industry, sector, and economic parameters. It constantly looks for opportunities across stocks and sectors which has resulted in significant alpha for its investors.
The Scheme is benchmarked against Nifty 50 – TRI as a primary index and Nifty Midcap 150 – TRI as a secondary index.
SBI Magnum Midcap Fund is an open-ended equity scheme and belongs to SBI Mutual Fund. It is a well-established mid-cap mutual fund scheme launched in March 2005 and currently has an AUM of Rs 16,458.73 crores (as of Feb 29, 2024).
The fund invests in a portfolio of mid-cap companies aiming for capital appreciation and long-term growth. The fund aims to focus on fundamentally sound companies that have solid management and sound business models, and those that have the potential to grow and become leaders of tomorrow.
SBI Magnum Midcap Fund is benchmarked against Nifty Midcap 150 – TRI as a primary index and S&P BSE Sensex – TRI as a secondary index.
Investment Style and Philosophy:
– Quant Mid Cap Fund is a small-sized scheme in the mid-cap fund category that follows an aggressive investment approach. It is an actively managed scheme that uses a “buys and dips” approach to continuously search for attractive opportunities.
The fund keeps a portfolio that is skewed towards mid-caps, but it is also quick to adjust allocations between market caps based on the state of the market. With commendable returns across time frames, Quant Midcap Fund is now a top-performing mid-cap mutual fund.
– SBI Magnum Midcap Fund is one of the popular schemes in the mid-cap mutual fund category that has made a significant recovery over the last couple of years after experiencing an extended bout of performance pressure. During its journey spanning over 18 years, the fund has been through lots of ups and downs.
The scheme follows a blend of growth and value styles of investing. It follows a ‘bottom-up’ approach to stock-picking to choose high-growth companies across sectors. The fund manager aims to construct a diversified portfolio and holds each of the stock holdings with high conviction.
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Performance Comparison: Rolling Returns
Scheme Name Absolute (%) CAGR (%) 1 year 3 Years 5 Years 7 Years 10 Years Quant Mid Cap Fund (G)-Direct Plan 29.92 34.05 16.30 16.07 18.31 SBI Magnum Midcap Fund(G)-Direct Plan 24.86 27.62 13.09 16.17 21.35 Mid Cap – Category Average 44.94 21.87 20.49 16.01 19.83 Benchmark – Nifty Midcap 150 TRI 30.88 25.27 14.43 17.01 14.07 Data as of February 29, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)Between 2016 and the beginning of 2020, SBI Magnum Midcap Fund experienced a prolonged phase of subdued growth during which it periodically lagged behind the benchmark and its prominent peers. However, the fund has recovered over the past few years to maintain its position among its peers.
The SBI Magnum Midcap Fund has rewarded investors for their patience by doing well over full market cycles, despite periods of underperformance and a sizable allocation to firms in the lower market capitalization. This demonstrates the SBI Magnum Midcap Fund’s capacity to pay out rather well to investors over longer periods.
[Read: 5 Best Mid Cap Funds for 2024: Top Performing Mid Cap Mutual Funds in India]
Quant Mid Cap Fund has consistently outperformed the Nifty Midcap 150 TRI benchmark across all timeframes. Despite being relatively small in size, Quant Midcap Fund has registered extraordinary performance in recent years and rewarded its investors with strong gains. Quant Midcap Fund is now a top-performing Mid Cap Mutual Fund with commendable returns across time frames.
Despite its aggressive approach, Quant Midcap Fund has proved its ability to limit downside risk during depressed market conditions even though it has underperformed during bull phases in the past. Notably, the fund has recorded a higher churn rate in the last year.
While both the scheme’s historical performance is encouraging, it’s crucial to remember that past performance doesn’t guarantee future results. Mid-cap stocks are inherently more volatile, meaning their prices can fluctuate significantly. This volatility can lead to both higher potential returns and potential losses.
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Portfolio Composition: Asset Allocation of Schemes
Both Quant Mid Cap Fund and SBI Magnum Midcap Fund are popular amongst investors in the mid-cap segment, but their asset allocation strategies differ slightly.
Scheme Name Mid Cap % Large Cap % Small Cap % Quant Mid Cap Fund 65.47 24.46 10.06 SBI Magnum Midcap Fund 64.99 7.75 18.49 Data as of February 29, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)Both funds are primarily invested in mid-cap companies, however, SBI Magnum Midcap Fund allocates a slightly higher portion to small-caps compared to Quant Mid Cap Fund. This strategy might offer potentially higher returns but also carries more risk due to the inclusion of smaller companies.
Quant Mid Cap Fund holds a higher allocation to large-cap stocks as compared to SBI Magnum Midcap Fund, this strategy offers a balance between growth potential and risk. Overall, the asset allocation of these two funds is quite similar, with both being focused on mid-cap stocks.
However, SBI Magnum Midcap Fund has a slightly more aggressive allocation, with a higher weighting towards small-cap stocks. This could potentially lead to higher returns, but also higher risks.
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Market Volatility: Risk Profile of Schemes
The equity market experiences constant ups and downs, and mid-cap funds are particularly susceptible to these fluctuations. Consequently, mid-cap funds carry a higher risk profile compared to large-cap funds.
Risk Ratio (3 years) Quant Mid Cap Fund SBI Magnum Midcap Fund Standard Deviation 17.70 14.30 Sharpe Ratio 0.52 0.38 Sortino Ratio 1.09 0.79 Data as of February 29, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)In this case, Quant Mid Cap Fund has a higher standard deviation (17.70) compared to SBI Magnum Midcap Fund (14.30), suggesting more significant price swings.
Both ratios favour Quant Mid Cap Fund with a higher Sharpe Ratio (0.52) and Sortino Ratio (1.09) compared to SBI Magnum Midcap Fund (0.38 and 0.79 respectively). This indicates that Quant Mid Cap Fund delivers better risk-adjusted returns, meaning it generates higher returns relative to the level of risk it takes.
[Read: AMFI Issues New Risk Disclosure Guidelines for Mid-Cap and Small Cap Funds]
Based on the risk ratios, Quant Mid Cap Fund appears to be a riskier investment due to its higher standard deviation. However, it also offers potentially better risk-adjusted returns as suggested by the Sharpe and Sortino Ratios.
Although Quant Mid Cap Fund frequently churns its portfolio and carries a higher turnover ratio, it has managed to keep the volatility at reasonable levels. SBI Magnum Midcap Fund exhibits lower volatility but also potentially lower risk-adjusted returns.
It’s crucial to consider other factors beyond these ratios when evaluating a fund’s risk profile. One must also consider their risk tolerance and investment goals to determine which fund aligns better with their investment strategy.
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Top Holdings of the Mid-Cap Schemes:
Due to the dynamic nature of mid-cap funds, top holdings can change frequently. However, analysing current holdings can offer insights into the fund manager’s investment philosophy.
Quant Mid Cap Fund SBI Magnum Midcap Fund Company % Assets Company % Assets Reliance Industries Ltd. 9.84 CRISIL Ltd. 4.27 Aurobindo Pharma Ltd. 6.97 Sundaram Finance Ltd. 3.77 Punjab National Bank 5.39 Torrent Power Ltd. 3.39 NMDC Ltd. 5.37 Thermax Ltd. 3.34 Treasury Bills 5.22 The Indian Hotels Company Ltd. 3.10 Linde India Ltd. 5.15 Tube Investments of India Ltd. 2.97 Bharat Heavy Electricals Ltd. 4.72 Schaeffler India Ltd. 2.85 Poonawalla Fincorp Ltd. 4.62 Coromandel International Ltd. 2.29 Adani Power Ltd. 4.57 Sona BLW Precision Forgings Ltd. 2.20 Oracle Financial Services Software Ltd. 4.20 Max Healthcare Institute Ltd. 2.17 Data as of February 29, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)Quant Mid Cap Fund has a larger allocation to Reliance Industries (9.84%) compared to SBI Magnum Midcap Fund, indicating a more defensive tilt with a large-cap leader. Punjab National Bank (5.39%), NMDC (5.37%), and Adani Power (4.57%) suggest a focus on the Financials and Energy sectors.
The top holdings for SBI Magnum Midcap Fund are spread across various sectors like CRISIL Ltd. (Financials), Sundaram Finance (Financials), Torrent Power (Energy), Thermax (Engineering), and Indian Hotels Company (Consumer Discretionary). This suggests a broader sectoral exposure.
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Expense Ratio of the Schemes
When comparing mid-cap funds, the Expense Ratio, which represents the annual fee charged, plays a crucial role in determining your returns. Here’s a quick breakdown of Quant Mid Cap Fund vs SBI Magnum Midcap Fund:
Scheme Name Direct Plan Expense Ratio Regular Plan Expense Ratio Quant Mid Cap Fund 0.71% 1.83% SBI Magnum Midcap Fund 0.83% 1.70% Data as of February 29, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)Quant Mid Cap Fund offers a higher expense ratio in the regular plan, indicating lower net returns for investors compared to SBI Magnum Midcap Fund which offers a cost advantage to investors. Both Quant Mid Cap Fund and SBI Magnum Midcap Fund offer direct plans with competitive expense ratios. While the SBI Magnum Midcap Fund has a slightly higher expense ratio, the difference is minimal.
Remember, a lower expense ratio translates to potentially higher returns over time.
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Suitability of Investors to the Schemes:
Quant Mid Cap Fund is suitable for investors with a moderate risk appetite seeking long-term capital appreciation through quality mid-cap companies. For aggressive investors looking for an agile mid-cap fund with an investment horizon of at least 5-7 years.
The fund’s quantitative strategy relies on its proprietary framework to identify investment opportunities. Investors who trust this approach might find it appealing.
SBI Magnum Midcap Fund’s exposure to cyclical sectors might be slightly lower than its category peers, potentially reducing volatility. This could be a good fit for investors with a moderate risk appetite seeking growth in the mid-cap space.
Both schemes are suitable for investors willing to accept moderate to high volatility in exchange for higher potential returns. And for the ones with a long-term investment horizon of at least 5-17 years or more.
[Read: Navigating the Market Landscape: How to Approach Equity Mutual Funds in 2024?]
To summarise…
The mid-cap segment in 2024 appears to be a promising avenue for investors seeking growth potential. The Indian economy’s continued revival is expected to benefit mid-cap companies, many of which are leaders in their respective niche industries. This could translate to strong earnings growth and stock price appreciation for these companies.
Despite the potential headwinds, the mid-cap segment in 2024 presents exciting possibilities. With a focus on identifying high-quality mid-cap companies with strong growth potential and reasonable valuations, actively managed funds can play a vital role in helping investors navigate this dynamic segment and potentially capture the significant returns it can offer.
Both Quant Mid Cap Fund and SBI Magnum Midcap Fund offer exposure to the mid-cap space. While Quant Mid Cap Fund offers a more balanced approach with allocation to large caps, SBI Magnum Midcap Fund has a slight edge in terms of volatility. Ultimately, the best choice depends on your risk tolerance, investment horizon, and specific investment goals.
Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
Disclaimer: The article does not constitute any investment Advice. PersonalFN does not receive any monetary compensation from the Funds name stated in the article.
This article first appeared on PersonalFN here
