Motilal Oswal Mid Cap Fund vs Invesco India Mid Cap Fund: Which is Better?

Mid-cap stocks occupy the middle ground in market size, but their returns can be anything but middle-of-the-road.

In the last few years, mid cap funds gained significant traction among investors amid stellar rally in mid-cap stocks.

These funds carry the ability to deliver higher growth than large cap funds while maintaining a balanced risk profile.

Motilal Oswal Mid Cap Fund and Invesco India Mid Cap Fund are among mid cap funds that have established a track-record of superior long-term returns.

However, both funds follow a distinct investment strategy.

What follows is a comparison of the two funds across key parameters - historical performance, risk-adjusted returns, and portfolio composition - so that you can understand how their approaches impact their outcomes.

Fund Overview

Launched in April 2007, Invesco India Midcap Fund aims to invest in growth-oriented mid-cap companies that are trading at reasonable valuations.

The fund is benchmark agnostic and uses the bottom-up approach to select stocks.

While picking stocks, the fund managers look for companies with stable business models, attractive return ratios, strong cash flows with healthy balance sheet positions.

The fund maintains a reasonably diversified portfolio but does not hesitate taking overweight positions in stocks/sectors that may turn out to be winners.

Invesco India Mid Cap Fund - Snapshot

Source: ACE MF

Coming to Motilal Oswal Midcap Fund, it was launched in February 2014 and aims to create alpha through a concentrated portfolio of up to 35 mid-sized companies.

The fund managers select stocks based on the AMC's QGLP philosophy i.e. invest in Quality businesses with reasonable Growth potential and with sufficient Longevity of that growth potential at a fair Price.

While picking stocks, the fund looks at crucial parameters such as RoCE, RoE, PE, PEG, and cash flows.

It holds many of its stocks with a short-term view to capitalise on the various opportunities available in the market.

Motilal Oswal Mid Cap Fund - Snapshot

Source: ACE MF

#1 Historical Returns

On a 5-year returns basis, Motilal Oswal Mid Cap Fund was the category topper, delivering returns at a CAGR of nearly 20%.

In comparison, the benchmark Nifty Midcap 150 - TRI index registered a growth of 14.6%.

The fund also outpaced the category average returns of 14.8%.

However, it has trailed the benchmark and the category average on a shorter 1-year and 2-year return basis.

Motilal Oswal Mid Cap Fund vs Invesco India Mid Cap Fund - Historical Performance

Invesco India Midcap Fund too was among the category toppers on a 5-year return basis having delivered returns at 18.6% CAGR.

It has also outpaced the benchmark and the category average by a notable margin across short to medium-term time frames.

#2 Risk-Adjusted Performance

Over the last 3 years, Motilal Oswal Mid Cap Fund recorded a standard deviation of 19.3% (annualised), the highest in the category. This can be attributed to its agile portfolio strategy and concentrated holdings.

In terms of risk-adjusted returns as denoted by the sharpe and sortino ratios, Motilal Oswal Mid Cap Fund currently trails many of its peers. This was likely driven by its weak performance in recent years.

Motilal Oswal Mid Cap Fund vs Invesco India Mid Cap Fund - Risk-Adjusted Performance

Invesco India Mid Cap Fund too recorded one of the highest standard deviations in the category at 18.4% which is likely due its significant exposure to small caps.

Meanwhile, Invesco India Mid Cap Fund's risk-adjusted returns were among the best in the category, implying that it adequately rewarded investors for the excess risk.

#3 Portfolio Concentration

Motilal Oswal Mid Cap Fund maintains a concentrated portfolio of around 20-30 stocks. The top 10 stocks in its portfolio form nearly 55% of its assets.

The fund holds many of its stocks with a short-term view, and has registered a relatively higher portfolio turnover of 85-130% in the last one year.

The limited number of stocks can help it create high alpha if the fund manager's bets turn out to be successful but may result in high downside if the stocks do not pan out as expected.

The fund held its top exposure in One97 Communications, Kalyan Jewellers India, Eternal, Coforge, and KEI Industries.

In terms of sectors, the fund currently has high exposure to infotech, finance, electricals, consumer durables, and consumption.

The fund invests around 66-75% of its assets in midcaps, 16-26% in largecaps, and up to 4% in smallcaps.

In contrast, Invesco India Mid Cap Fund holds a fairly diverse portfolio of around 40-50 stocks. The top 10 stocks account for about 50% of its assets.

The fund follows a high conviction buy-and-hold approach holding most of its stocks with a long-term view. It carries a low turnover of 30-35%.

This strategy highlights the fund's emphasis on risk management and steady returns rather than chasing momentum.

Among its top holdings the fund held Prestige Estates Projects, Max Healthcare Institute, The Federal Bank, Meesho, and Manipal Health Enterprises.

The fund's portfolio is skewed towards the healthcare sector, followed by banking & finance and retailing.

Invesco India Midcap Fund carries average allocation of 65% in midcaps along with 13-18% in largecaps and a substantial 16-24% in small caps.

Conclusion

Overall, Motilal Oswal Mid Cap Fund follows a concentrated approach with high portfolio churn strategy that can potentially generate substantial alpha during favourable market conditions.

However, this may also mean higher downside risk and higher volatility, making it riskier than some of its peers.

Meanwhile, Invesco India Mid Cap Fund follows a more conservative approach, focusing on stocks with long-term potential rather than following market momentum.

This approach may potentially translate into better stability in terms of returns and often surpass benchmark at reasonable risk level.

This highlights that even schemes within a category can vary each other in terms of risk-reward and portfolio strategies.

Thus, investors should carefully evaluate schemes based on various parameters and choose the one that aligns with the investment objectives.

Happy investing.

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