AssetPlus NFO Review: ITI Mid Cap Fund

ITI AMC is launching a NFO, which is set to open for subscription from Feb 15th, 2021 and closes on March 1st, 2021.

Investment Objective: To generate wealth over the long term, suitable for investors having a high risk appetite who are comfortable with notional losses in the short term.

Investment Strategy: The fund emphasizes on Nifty Midcap 100 Index(Listed stocks on NSE from 101 to 200). The fund will invest at least 65% of its portfolio in Midcap stocks and the remaining 35% can be in any other Equity market cap/Debt Instruments. The focus is to create returns which can outperform the benchmark by active fund management. The portfolio is diversified across various sectors and ITI as an AMC is highly process driven, with emphasis given to SQL(Margin of Safety, Quality of the business, Low Leverage)

Fund Manager: George Heber Joseph and Pradeep Gokhale

Benchmark: Nifty Midcap 100 TRI

Minimum Lumpsum Investment Amount: Rs 5,000

Minimum SIP Investment Amount: Rs 1,000

Fund Management Process:

1. The Fund follows an active management with the expectation to generate alpha over the long term.
2. Selection criteria is majorly from Nifty Midcap 100.

3. Fund will shortlist companies which satisfy the following:

• Robust Corporate Governance
• Ability to capture market share
• Have specialty offerings in their respective segments
• Clean Balance sheet
• Reasonable Valuations

4. Additional focus will be given on companies which are emerging and have high growth potential, cyclical companies which are attractive to buy and rural theme as a whole.

5. Cash calls will be limited, with 90% of the portfolio always being invested in securities.

6. There will be a maximum of 60 stocks and no single stock will exceed 3% of the portfolio.

Opportunity:

Nifty Midcap 100 has been underperforming Nifty 50 for more than 3 years. Majority of the midcap companies are still trading below their historical average and are highly attractive when compared to the companies of Nifty 50. With demand picking up faster than expected, the revival of midcap story is not so distant as overall revenues and profitability have started to show signs of healthy progress.

When the economy starts showing signs of broad based growth, midcaps tend to outperform largecaps in the longer run. Close to 70% of Nifty Midcap 100 is still undervalued to a great extent, making it more attractive for active stock picking.

Based on our analysis, we have observed the following pros and cons

Pros:

1. Focuses on companies which have the potential to become largecaps.
2. An approach which is highly process driven.
3. Sector Agnostic.
4. Active fund management having the ability to generate superior returns.

Cons:

1. Mostly limited to just Nifty Midcap 100 Universe
2. Relatively new AMC when compared to its peers.
3. The Assets Under Management under ITI AMC is also relatively low.
4. High expense ratio.

This fund is backed by an able fund management but the mutual fund house has entered the space quite recently when compared to many established names in this business. There is proper filter used in selecting midcap stocks as each and every one of them is included in a specific proportion which also makes it a risky bet but at the same time provides an opportunity for higher returns.

History has repeatedly shown us that Midcaps as a category has the potential to generate much better returns than Largecaps but at the same time, has faced the brunt of slowdown. It is of utmost importance that the fund should be discussed with your financial advisor and then ascertain whether it is suitable to invest. Always read the scheme documents fully before investing.