MF Tracker: Will this Rs 30,000 crore smallcap fund continue to maintain its long-term performance?

Economic Times

3 days ago

ETMarkets.com Launched in September 2009, the SBI Small Cap Fund is given a three-star rating by Value Research and is unrated by Morningstar.
SBI Small Cap Fund emerged as the best-performing equity mutual fund based on daily rolling returns, delivering a CAGR of 21.87% over the past seven years. This performance stands out among approximately 171 equity mutual funds during the same timeframe.
Launched in September 2009, the fund is given a three-star rating by Value Research and is unrated by Morningstar.
Based on daily rolling returns, the fund has offered 20.68% CAGR in the last five years and in the last three years, it gave a CAGR of 26.13% based on daily rolling returns.
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Based on the trailing returns, the fund has underperformed or performed at par with the category average. In the three months, the fund gave a 15.23% return against 18.64% as the category average. In the last six months, the fund lost 6.95% against a loss of 6.49% by the smallcap category. In the last one year, three years, and five years, the fund has underperformed against its category average in the similar period. Over the past year, the fund delivered a return of 7.43%, lagging the category average of 14.96%. Over three years, it posted an 18.87% CAGR versus the category's 23.38%. Across five years, the fund returned a CAGR of 29.31%, falling short of the 34.23% category average.
Note, the returns of benchmark BSE 250 Small Cap - TRI were not available in the ACE MF, so ETMutualFunds could not compare the performance of the fund with the benchmark.
According to an expert, since its inception, SBI Small Cap Fund has consistently outperformed its benchmark, delivering a 21.87% CAGR over seven years based on daily rolling returns, an impressive feat in the small-cap space. 'What sets the fund apart is its consistency across market cycles, including periods of high volatility like the 2020 pandemic crash and the 2018 mid-cap/small-cap correction. Even during these downturns, the fund demonstrated lower drawdowns compared to peers, suggesting superior risk-adjusted returns,' Shruti Jain, Chief Strategy Officer, Arihant Capital Markets, shared with ETMutualFunds.Jain adds that the fund follows a bottom-up stock-picking approach, with a focus on companies having scalable business models, clean governance, and healthy balance sheets. Over the last 10 calendar years (2015–2024), the smallcap fund posted negative returns only once—in 2018—when it declined 19.62%. Its best performance came in 2017, delivering a stellar return of 78.66%, the highest in the decade.'The fund has consistently showcased strong downside protection compared to both its benchmark and peers. During the 2018 small-cap correction, while the Nifty Small Cap 100 index dropped by 44.4%, SBI Small Cap Fund limited its decline to just 28.1%, outperforming the category average fall of 29.4%,' Jain further commented.'Again, in the 2020 COVID-19 market crash, the fund's downside capture ratio stood at an impressive 43.6, meaning it lost less than half as much as the broader market. In recent corrections, the funds have been almost at par with its peer and benchmarks. These figures highlight the fund's resilience and effective risk management, even during some of the most volatile market phases,' she added.
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If an investor invested Rs 10,000 at the time of the inception of the fund, the current value of the investment would have been Rs 1.23 crore with an XIRR of 21.37%. In the last five years, the value of the same monthly investment would have been Rs 9.53 lakh with an XIRR of 19.14%.In the last three years, the value of the same SIP investment would have been Rs 4.44 lakh now with an XIRR of 14.93%If an investor made a lumpsum investment of Rs 1 lakh at the time of the inception of the fund, the current value would have been Rs 16.91 lakh now with a CAGR of 19.67%. In the last five years, the value of the same lumpsum investment would have been Rs 3.58 lakh with a CAGR of 29.08%. In the last three years, the value of this investment would have been Rs 1.68 lakh now, with a CAGR of 18.90%.The smallcap fund had 79.73% in equity, 0.17% in debt, and 20.10% in others as on April 30, 2025. In comparison to the small cap category, the scheme is overweight on others, whereas underweight on equity and debt. The category on average had 91.20% in equity, 0.29% in debt, and 8.51% in others. Being a smallcap fund, the scheme invests 76.96% in small caps, 1.77% in mid caps, and 21.27% in others.Post the allocation of the small cap fund, Jain said that SBI Small Cap Fund has demonstrated effective downside risk management by maintaining a well-diversified portfolio, avoiding excessive concentration, and adopting a bottom-up stock selection approach and the fund manager tends to focus on companies with strong balance sheets, quality management, and scalable business models traits that help weather economic slowdowns. The PE and PBV ratios of the midcap fund were recorded at 40.75 times and 6.26 times, respectively, whereas the dividend yield ratio was recorded at 0.59 times as of April 2025.The fund had the highest allocation in the finance sector of around 7.94% compared to 7.53% in the category. The scheme is overweight on capital goods, chemicals, FMCG, hospitality, Agri, Infrastructure, and consumer durables.'Many of the portfolio's companies are under-researched or emerging players, which offers the potential for high alpha generation. The fund typically holds around 45–55 stocks, ensuring diversification without dilution of returns,' Jain told ETMutualFunds.
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The top 10 stocks of the fund constitute 24.66% of the total portfolio as of April 2025. Based on the last three years, the scheme has offered a Treynor ratio of 1.65 and an alpha of 0.01. The sortino ratio of the scheme was recorded at 0.54. The return due to net selectivity was recorded at (0.06), and the return due to improper diversification was recorded at 0.07 in the last three years.The expert adds that the fund's Sharpe Ratio has consistently been higher than the category average, reinforcing its strength in managing both growth and downside risks. The investment style of the fund is to invest in growth-oriented stocks in smallcap market capitalisationApart from the SBI Small Cap Fund, there are 22 other funds in the category which have a track record of three years in the market. Among the total 23 funds in the category, Bandhan Small Cap Fund offered the highest return of 32.09% in the last three years. ITI Small Cap Fund offered the second-highest return of 29.40% in the same period.
PGIM India Small Cap Fund gave the lowest return in the last three years of around 15.45%. Post the performance of the small cap fund in the last three years, Jain said that the Nifty SmallCap 250 index is running at a PE ratio of about 32.4 which is higher than the 5 years average PE range, indicating that valuations are stretched which suggests that investors should be cautious in the short term, as high valuations may limit near-term upside and increase vulnerability during market corrections. For conservative investors, Jain advises that they may choose to stay away from small-cap funds given their high volatility and current elevated valuations, and instead, they can focus on large-cap funds, which are available at attractive valuations and offer more stability in uncertain markets. On the other hand, for aggressive investors, she adds that those with a high-risk appetite and long-term horizon can consider adding small-cap funds with a proven track record to their portfolios. 'A staggered investment approach through SIPs is advisable to manage market fluctuations and reduce timing risks. While near-term caution is warranted, small-cap funds continue to offer strong long-term growth potential in India's expanding economy,' she added.One should always choose a scheme based on risk appetite, investment horizon, and goals.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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