While large-cap funds have given average category returns of 5.74% in the past one year, mid- & small-cap funds have fared much worse with returns of -1.44%, data collated from Value Research show. This puts the gap in the one-year performance of these funds at about 7.1 percentage points.
The gap narrows if a wider investment period is considered. For instance, large-cap funds gave average category returns of 1.4% for a three-year period against -2.6% given by the mid- & small-cap category. This means the gap between these two categories was just about 4 percentage points for a three-year period.
Over a five-year period, the gap is just about 1 percentage point , with large-cap funds giving returns of 5.6% versus 6.57% for mid- & small-cap funds. Furthermore, while the large caps have outperformed mid & small caps for one- and three-year periods, the latter turned in a better performance for a five-year period.
Large caps tend to do better than mid caps in a difficult business environment. Mid caps have been underperforming this year owing to high debt and corporate governance issues, said AK Prabhakar, senior VP, equitiy research, Anand Rathi Financial Services. Experts said the economic slowdown, weak currency and global concerns had also taken a toll on mid-cap stocks this year.
In the year to date, the BSE MidCap index has fallen 25% compared with 9.7% for the BSE 100 and 5.7% for the BSE Sensex. Interestingly, despite their absolute outperformance, a larger percentage of large-cap funds have underperformed their benchmark indices compared to their small/mid-cap cousins this year, according to an analysis done by Morningstar Indias research analyst Gaurav Dutta.
For instance, almost 60% of large-cap funds have underperformed its benchmark index in the period in the one year ended July this year compared with 21% small/mid-cap equity funds that underperformed their benchmark during the period. One reason for this is the high exposure of large caps to sectors such as banking which have taken a beating this year, said experts. The BSE Bankex is down 26% year to date. On the other hand, a large percentage of mid- & small-cap funds had outperformed its benchmark as fund managers had restricted their investments to mostly quality mid-cap stocks, experts said.
For a one-year period, Axis Equity (14.58%), BNP Paribas Equity (13.45%) and Peerless Equity (12.7%) are some of the top performers in the large-cap category, while schemes such as Franklin India High Growth Companies (12.9%), Franklin India Smaller Companies (10.5%) and SBI Magnum Midcap (10.5%) were the toppers in the mid- & small-cap category.
According to market participants, only a handful of sectors such as IT, pharma, healthcare and FMCG have been holding up the benchmark indices, Sensex and Nifty, this year and, therefore, the performance these indices do not reflect the real slowdown in the economy.