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NEW DELHI: In a note to clients, Vinit Sambre, head-equities, DSP Investment Managers Pvt Ltd, and fund manager of DSP Mid Cap Fund provided insights into why the scheme has been underperforming the benchmark over the past year.

DSP Mid Cap Fund has delivered 50.4% returns in the last one year, however, the scheme has underperformed Nifty Midcap 100 index, the benchmark, by 30.14% during this period.

The mid-cap fund is the fourth largest scheme in the category, which has delivered an average return of 71.87%, 24.94% and 19.63% on one-year, three-year and 10-year basis, respectively.

Explaining what the fund could have done differently, Sambre said, “We avoided some of the best performers in the index as they do not qualify on our thresholds of balance sheet quality, corporate disclosures and sustainability of business models. We do not regret missing these names. We underestimated the earnings momentum and missed the rally in Midcap IT companies."

“We were early in trimming weights in specialty chemicals companies. There were businesses where we took longer to convince ourselves of the underlying changes. But we judge these decisions based on the quality of our analysis at the time we made those decisions and not by the outcomes," he added.

The fund house in the note also highlighted that the DSP Mid Cap Fund delivered three- and 10-year returns of more than compounded annual growth rate (CAGR) of 22.4% and 18.78%, respectively.

Moreover, in eight of 10 calendar years from 2010 to 2020 the fund has outperformed the benchmark.

DSP MF added that the alpha over the last three years is positive, even after the under-performance in the last one-year period (year ending September 2021).

“There is also some cyclicality in this number. This is mostly driven by cyclicality in market sentiments, the economy and the operating environment of the businesses themselves that you own through this fund," Sambre wrote.

The fund house added more weight to some of the stocks have underperformed in the last one year. These stocks are Alembic Pharma, City Union Bank, Coromandel International and Manappuram Finance.

The asset management company also highlighted that after the covid-19 outbreak, the scheme saw a fall of 32.8% against the 48.2% fall in its benchmark, Nifty Midcap 100 TRI.

DSP Mid Cap Fund has assets under management of over 14,190 crore as of 31 October. The biggest fund in the category is HDFC Mid-Cap Opportunities Fund ( 31,629 crore), followed by Kotak Emerging Equity Fund ( 16,485 crore) and Axis Midcap ( 15,988 crore).

The best performing scheme in the category is PGIM India Midcap Opportunities Fund which has delivered a return of around 95% over a year-basis.

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