Long term investors are better off betting on mid-cap stocks than locking large funds in blue chips according to a study by global analytical firm Crisil. Mid-cap equities (part of the CNX Midcap) have outperformed the generally preferred (more liquid) large-caps (Nifty), Crisil says, adding, mid-caps not only provided higher returns over longer time frames, but were also less volatile.
Here are five key findings of the Crisil study
- Higher returns: Over the last 10 years (till March 2013), midcap stocks gave 23 per cent annualised returns, while the Nifty returned 19 per cent. Over the last 10 years, the mid-cap index has outperformed the Nifty in six out of 10 years.
- Lower volatility: The mid-cap index has been less volatile than the Nifty over multiple market cycles such as three, five and seven years. Higher volatility may be good for traders, but bad for investors as stock prices can change dramatically over a short time period.
- Greater diversification: The midcap index has exposure to 30 industries, while the Nifty constitutes 17 industries (on an average) over the last seven years (since June 2006). This helps in reducing risk.
- Lower sector concentration is another factor for lower volatility in mid-cap index. There are only four industries with more than 5 per cent exposure in the mid-cap index compared to nine for the Nifty.
- The midcap index has 23 per cent allocation to defensive sectors such as consumer staples (non-durables) and pharmaceuticals (also feature among top five sectors of the index). In contrast, these defensive sectors have a 10 per cent weight in the Nifty and do not feature among its top five sectors. Defensive stocks help reduce volatility as they perform better in downtrend, helping the overall portfolio.
(Mid-caps in this article refer to only those stocks on the CNX Midcap Index)