Why Edelweiss Large and Mid Cap Fund is a good investment

Investors can buy the units of Edelweiss Large and Mid Cap that has delivered stable returns over the long run. With large and mid-cap indices scaling new highs on the hopes of economic recovery, investors can add this fund, which gives the right mix of stable large-caps and growth-oriented mid-caps, to their portfolio.

Given that currently, equity markets hover at new highs, investors can take the systematic investment plan (SIP) route to mitigate risks from market correction and choppiness with a minimum holding period of five years. As a fund category, the large and mid-cap combination has outperformed pure large-caps while exhibiting low volatility majority of times.

Edelweiss Large and Mid Cap has clocked 15.5 per cent returns over the past five-year period, outperforming the large and mid-cap category average return of 15 per cent while under-performing its benchmark index’s (Nifty Large Midcap 250 TRI) return of 17.4 per cent.

Over the past one and three-year time frames also the fund has delivered 65.5 per cent and 15.4 per cent returns respectively, outpacing the category average gains of 63.8 per cent and 13.45 per cent correspondingly. The fund remains in the first and second quartile of funds in the large and mid-cap category. Over the past one and three-year periods, the scheme has delivered slightly higher returns than peer funds, namely Canara Robeco Emerging Equities and Invesco India Growth Opportunities.

The fund has a tendency to deviate from the benchmark, which may lead to temporary under-performance.

Portfolio and strategy

Edelweiss Large and Mid Cap selects quality businesses that it thinks will stay strong or recover quickly from market and economic shocks. The fund avoids businesses run by weak management and those that do not have earnings or growth visibility. It maintains a certain degree of portfolio liquidity so as to glide through market fluctuations and redemption pressures. It holds about 65 stocks in its portfolio.

After under-performing in 2018, the fund bounced back strongly in 2019 and maintained stable performance in 2020.

The fund’s current large-, mid- and small-cap allocation stands at 51.8 per cent, 33.5 per cent and 10.6 per cent respectively. Over the past few months, the fund has consciously increased allocations in mid- and small-caps that can boost the NAV if the current market rally sustains. It follows a buy-and-hold strategy, which gives ample time for smaller companies to perform. It has an average stock holding period of 25 months.

Banks and IT are the top preferred sectors, with allocations of 18.6 per cent and 9.8 per cent correspondingly, followed by finance and pharma sectors. It invests in both private and PSU banks; ICICI Bank, HDFC Bank, SBI and Axis Bank are among the top stock holdings that have allocations in the range of 3-6 per cent. Top IT stock holdings such as Infosys and Mphasis have also delivered good returns over the past one year. The fund does not take any cash call.

Edelweiss Large and Mid Cap is currently overweight on industrial, cement and telecom sectors.

The increased spending on affordable and low-cost housing, coupled with normal monsoon, is seen boosting overall cement demand. The fund has allocation in Ultratech Cement, Dalmia Bharat and JK Cement.

It is underweight on auto, oil & gas and consumer sectors.