Sebi requested Asset Management Companies which manage mutual funds to disclose certain parameters related to liquidity, risk and turnover as well as client holdings every month for mid and small cap schemes. Reports are available for these schemes for the months from February to April 2024. Our observations on the parameters disclosed for mid cap schemes are as under:
The largest fund, Hdfc Mid Cap Opportunities Fund will take 26 days to liquidate 50% of its portfolio of Rs 63,409 crs. While Kotak Emerging Equity Fund with Rs 42,681 crs will take 27 days to liquidate 50% of its portfolio. The SBI Magnum Mid Cap Fund with Rs 17,915 crs will also take 25 days. Funds with Rs 10,000 crs of assets will take 5-7 days to liquidate 50% of their portfolio. DSP Mid Cap Fund with Rs 17,000 crs of assets will take 14 days for the same. HSBC and PGIM seem to be doing a better job here. Clearly, liquidity differs from fund to fund and choosing a fund with better liquidity should be one criterion for choosing a mid cap fund. So the smaller funds will fare better here and bigger the better may not work here.
Out of the 29 funds, only four funds have an exposure to mid cap companies which is more than 70%. Remember Sebi requires that these funds invest at least 65% in mid cap companies (companies which rank 101 to 250 in the list of largest companies based on market capitalisation. A list released by AMFI every January and July).
Hdfc is sitting on the most amount of cash at 8.4% followed by Motilal Oswal at 7%. So most are almost fully invested irrespective of all the talk of mid and small caps being overvalued. Nobody wants to miss out if the markets keep rising.
The balance funds can be invested in large or small caps and its interesting to note that Quant has the highest allocation to large cap at 25% and consequently one of the lowest allocation to small caps at 0.62%. There are five other funds with an allocation of close to 20% to large caps. The largest allocation to small caps is of JM with 30% followed by Taurus and then followed by Tata, White Oak and UTI.
Motilal Oswal has the highest allocation to large caps at 22% followed by JM at 14%. The rest are significantly below 5%.
The highest annualised standard deviation is 16.65 and almost all funds are in the range of 12-15% whereas Invesco is the lowest at 3.93%. Wonder what Invesco is doing unless there is a typo here.
Interestingly, almost all funds have a portfolio beta less than 1. P/E ratios of funds also show a huge range from 21.39 for HDFC and 57 for Bandhan’s fund.
Portfolio turnover ratios show an anomaly for Franklin Prima Fund which is at 23.4 whereas the rest are mostly in low single digits whereas some are less than zero too. We have highlighted the above to AMFI. We checked the Franklin Fact sheet and the number for Franklin seems correct which means the others have to be reported as a percentage and seem to have been reported as a decimal. Assuming that the decimals are actually percentages, Quant has the highest turnover at 3.2 followed by White Oak at 2.54 which suggests very high churn.
Further, JM and Motilal have the highest concentration in terms of customer holdings. The top ten customers are 22% of Motilal’s assets and 14% of JM’s assets. In case of a issue, it may be possible that the most liquid assets are used to pay off these customers first who invariably will probably will be the first to redeem in case of any signs of trouble.
So here’s how to use these data:
- Choose funds which have high liquidity (ie those funds who can sell their portfolio in the lowest number of days)
- Funds with less concentration of clients are better. We have seen with debt funds that the smartest investors are the first to redeem leaving the rest with all the ill-liquid assets.
- Choose funds with low standard deviation and low portfolio turnover ratios. It’s a pity that Sharpe ratios are not disclosed here. But higher the Sharpe ratio, better is the fund.
- Choose your fund carefully. Some of the funds are mid and small cap funds and some are mid and large cap funds. It would make sense to up the minimum to 80%.
The link to the AMFI report on mid cap schemes for April 2024 flows is below:
https://www.amfiindia.com/riskparameter
