Sundaram Large and Midcap Fund: Best performing fund in its category in last 3 years

The last 2 - 3 year period has been a challenging one for the broader stock market. In the last 3 years, the Nifty Midcap 100 has given negative returns, falling by nearly 1%. Small caps have fallen even more with the Nifty Small Cap 100 falling by 13% during this period. Large cap stocks performed better (in relative terms) giving 9% CAGR returns over last 3 years, but the overall stock market performance has been disappointing.

In this challenging environment, Sundaram Large and Midcap Fund has performed quite strongly delivering double digit annualized returns in last 3 years; it is the best performing large and midcap fund over this period (Top Performing Mutual Funds (Trailing returns) - Equity: Large and Mid Cap).

What are large and midcap funds?

As per SEBI requirements, large and midcap fund must have minimum 35% allocation to large cap and 35% allocation to midcap stocks. While the minimum large cap allocation potentially ensures a degree of stability in volatile market conditions, the mandate for these funds provide enough flexibility to fund managers to position their portfolios for long term capital appreciation by identifying attractive investment opportunities across different market cap segments and industry sectors. As such, large and midcap funds are good investment choices for long term financial goals for investors with moderately high to high risk appetites.

Sundaram Large and Midcap Fund Overview

Sundaram Large and Midcap Fund (erstwhile Sundaram Equity Multiplier) was launched in February 2007 and has Rs 721 Crores of assets under management (AUM). The expense ratio of the scheme is 2.6%. The scheme has given 10.4% CAGR returns since inception and is helmed by veteran fund manager S. Krishna Kumar. The chart below shows the growth of Rs 1 lakh investment in the scheme over the last 3 years versus its benchmark index Nifty 200 TRI – Rs 1 Lakh invested 3 years back is now Rs 1.35 Lakhs

Source: Advisorkhoj Research

Performance versus different asset classes

The chart below shows the performance of Sundaram Large and Midcap Fund versus various asset classes over different time-scales. The scheme has clearly outperformed over the last 3 and 5 years. It will useful to remind investors here that, equity funds should always be evaluated over performance tenures of at least 3 years.

Source: Advisorkhoj Research

The table shows the returns (absolute and annualized) of Rs 1 lakh lump sum investment in the scheme versus its benchmark and other asset classes like gold and fixed income (e.g. PPF) over the last 5 years.

Source: Advisorkhoj Research

Rolling Returns

The chart below shows the 3 year rolling returns of Sundaram Large and Midcap Fund versus its benchmark index Nifty 200 TRI over the last 5 years. Rolling returns is a recurring concept in our blog because we think it is the best (unbiased) measure of performance consistency of a mutual fund scheme across difference market conditions. We are showing 3 year rolling returns of the scheme because financial advisors usually recommend minimum 3 year investment tenures for equity funds.

Source: Advisorkhoj Rolling Returns calculator

You can see in the chart above that, Sundaram Large and Midcap Fund consistently outperformed its benchmark index over 3 year investment tenures across different market conditions, creating alphas for investors. Consistent alpha generation is one of the hallmarks of good stock selection and portfolio management. The table below shows the different rolling return statistics of the scheme versus the benchmark. You can see that the scheme outperformed the benchmark in all the parameters, e.g. average, median, maximum and minimum rolling returns over the last 5 years. The scheme delivered more than 12% annualized returns, 82% times in the last five years and more than 8% annualized returns, 100% of the times.

The chart below shows the 3 year rolling returns of Sundaram Large and Midcap Fund versus the large and midcap category over the last 5 years. You can see that the scheme was consistently able to beat the category average by a wide margin.

We in Advisorkhoj have developed a tool that identifies the most consistent funds in any category, based on their relative rolling returns performance (including average rolling returns and consistency of rolling returns outperformance versus category). Please see our tool, Top Consistent Mutual Fund Performers. You can see that Sundaram Large and Midcap Fund is among the most consistent schemes in the large and midcap category.

Source: Advisorkhoj Rolling Returns calculator

Portfolio Construction

Sundaram Large and Mid Cap Fund is a multi-cap fund with 50-60% allocation to large caps and 40-50% to mid and small caps.The investment strategy is a mix of top down and bottom-up approach with focus on absolute returns with a healthy mix of Multinational Companies’ stocks. Currently large cap stocks account for 53% of the portfolio value, while midcap stocks account for around 47%. Consumer non durables (13.5%), banks (13.4%), finance (12.8%), construction (7%), consumer durables (6.6%), cement (6.3%) etc are the major sector allocations. The portfolio is well diversified from a company concentration standpoint. L&T (4.9%), TREPS (4.6%), ICICI (4.6%), Bajaj Finance (3.9%) and Reliance Industries (3.8%) are top 5 holdings of this scheme.

SIP performance

The chart below shows the returns of Rs 10,000 monthly SIP in Sundaram Large and Midcap Fund over the last 10 years. You can see that with a cumulative investment of Rs 12 lakhs through SIP, you could have accumulated corpus of over Rs 22 lakhs in the last 10 years. This shows the wealth creation by the scheme over long investment horizons.

Source: Advisorkhoj Research

Conclusion

Sundaram Large and Midcap Fund is one of the best performing schemes in its category over the last few years. To get best results, investors should have at least 5 year investment horizon in this scheme. You can invest in this scheme through SIP for your long term financial goals. You can also invest in lump sum, provided you have an investment horizon of at least 3 to 5 years or longer. If you have lump sum funds but are worried about volatility in the short term, you can invest in Sundaram Money Fund and transfer fixed amounts from the liquid fund to Sundaram Large and Midcap Fund over the next 3 to 6 months using the Systematic Transfer Plan (STP) facility. Investors should consult with their financial advisors if Sundaram Large and Midcap Fund is suitable for their investment needs.