Launched in 2002, Sundaram Select Midcap Fund is an open ended equity scheme with a stated investment objective of achieving capital appreciation by investing in diversified stocks that are generally termed as 'midcaps'. The scheme can also invest upto 25% in equity futures and options including those of indices.

The fund terms ‘Midcaps’ as those stocks which have a market capitalization within the market capitalization band of the bench mark index CNX Midcap 200. Essentially these are smaller companies with usually better growth prospects but carrying higher susceptibility to business vicissitudes. Midcap stocks have a penchant for delivering high returns, especially during bull runs. Such stocks have historically shown greater volatility than other equity classes and are less liquid than large cap stocks. However, the Sundaram Select fund manager has a fairly conservative investment style with a diversified portfolio of 111 stocks with the top 10 stocks contributing a mere 19.72% of the overall portfolio.

The fund's performance over the short time horizon has been surprisingly lacklustre, although it has been successful in consistently beating its benchmark BSE Midcap Index over a longer time horizon. In the last two quarters (July to Sep and Oct to Dec) the fund has given returns less than its benchmark. It has also lagged behind most of its peer funds in the mid-cap category in this period. However, the fund has delivered high returns of 63.22% and 50.88% over a period of 1and 3 years respectively and this year has been one of the best performing funds among the entire class of equity funds. Its performance over the longer time horizon, has been the best among its peer funds registering an exceptional return of 65.92% (annualized) since inception.

On the flip side, even factoring in the diversification, the fund has registered beta of 0.73 (a measure of how volatile the returns are) and a Sharpe ratio of - 0.76 (an indicator named after the Nobel Laureate William Sharpe, which computes the returns achieved for the unit risk taken by the fund manager), prompting one to say that the fund is relatively more risky compared to a number of other established equity funds.

Taking a look at the fund portfolio, Jaiprakash Associates, Ansal Properties & Infrastructure, Emami are the top three holdings. Industrial manufacturing, construction and auto are the top three sectors contributing 23.79% of the overall portfolio. The fund manager has been fairly consistent with the sectoral allocation of funds with auto sector replacing the consumer goods sector among the top three sectors for the month of November 2006. He also has not been churning much of his portfolio of top 10 stocks.

The fund has added Andhra Bank, Torrent Power, Rane Holdings to its portfolio in the month of November 2006 whereas it has exited Kajaria Ceramics, UTV Software Communications and Nahar Spinning Mills from its portfolio during November. The holding in debt and cash segment is now back to earlier levels of around 25%,after going down dramatically to 6.16% of the overall portfolio in September 2006, signifying the fund manager's bullish outlook at that point of time.

The fund is managed by Anoop Bhaskar, who has also worked with Franklin Templeton Investments. Bhaskar also manages Tax Saver (OE) and the equity portfolio of the Balanced Fund and Monthly Income Plan. He is conservative when he says '' The general perception in the market is that the next round of wave can be for mid-cap stocks. However, I do not subscribe to this view. If 2007 is going to see the same amount of FII inflows as was the case with 2006, with a bulk of it coming from first time investors, then these funds will move into large-cap stocks, even if their valuations get stretched. My advice to investors would be that mid-caps should form 25% to 30% of the total portfolio''.