BOI MF’s Mid & Small Cap Equity and Debt Fund is a uniquely positioned aggressive hybrid fund that’s delivering top quartile long term performance with its differentiated portfolio strategy.
Unlike most other aggressive hybrids, this fund does not invest at all in large caps – it only invests in mid and small caps for the 65-80% equity component and balances this more aggressive equity strategy with a conservative accrual focused debt strategy that does not attempt to get adventurous with duration.
Alok says the downside protection of 25% debt enables a large section of investors to participate meaningfully in mid and small caps who otherwise get nervous of investing in a 100% SMID equity portfolio.
While the idea of relatively lower drawdowns attracts many investors, its top quartile long term performance on the back of a purely SMID equity portfolio catches the eye of those investors who seek alpha in this category.
The fund’s structure has more guardrails than other aggressive hybrids, which not only enables smoother journeys but also gives more stock picking opportunities.
The fund usually maintains a 75:25 equity : debt allocation. When equity comes close to 80% in a bull market, rebalancing has to happen and likewise when it goes down to 67% in a correction, Alok has to sell debt and top up on equity – which gets the fund to buy low – sell high when fine tuning allocations.
Additionally, since the fund cannot own large caps, every time a midcap stock moves into large cap on account of impressive market cap expansion, the fund has to sell it down and look for other opportunities –another forced profit taking discipline that has worked very well for the fund.
The fund took a knock in performance in the Jan-March2025 period when we saw steep corrections across the SMID space with much less drawdowns in the large caps space.
That said, performance is coming back as the SMID space recovers and Alok remains confident that the fund’s strategy and bottom up stock picking focus should enable him to continue delivering the strong long term performance that this fund has demonstrated over time.