The small-cap space was lousy this year. BSE 250 SmallCap fell twice as much as Sensex during the first half of 2022, which is quite usual in declining market phases. However, when the market tides turned later, its participation in the recovery was very minimal. What's your view?
It was inevitable. Despite the 2022 underperformance in the small-cap index, it has still delivered a CAGR of almost 30 percent in the last three years, which is phenomenal. If it doesn't perform for another year, say, that's just reversion to the mean. I wouldn't be too worried about it.
One needs to remember why small caps are always attractive. If you do a normal distribution of returns, I reckon that the small-cap curve will be fatter. That means you'll have a lot of losers and you'll have winners with a high dispersion of returns between them. This is what gives an opportunity for a fund manager to generate alpha. But, of course, the risk is also higher.
Despite the view on the category, I am like a perennial bull on small and mid caps. But note that we don't even look at 70 percent or more of the small caps out there. Given that the small- and-mid-cap universe itself is 10 times that of large caps, the probability of you buying a small- or mid-cap stock in a cap-agnostic portfolio is much higher, even if not as much. There is also the benefit of spotting under-researched stocks. You don't even have to be too smart; you just need to spend that time to research the stock.
SBI Small Cap Fund is now the second biggest in the category despite limits on SIP instalment and suspension on lump-sum investing. Do liquidity concerns or potential shrinking of the investable universe worry you?
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Denne historien er fra February 2023-utgaven av Mutual Fund Insight.
Start din 7-dagers gratis prøveperiode på Magzter GOLD for å få tilgang til tusenvis av utvalgte premiumhistorier og 9000+ magasiner og aviser.
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