1. Alpha of midcap funds will now largely emerge from smallcap stock selection !
2. On the other hand, with 1000+ stocks to choose from, and only 13 of 40 AMCs in the frey currently, a spate of NFOs could come in the smallcap fund category.
3. In the process, the market could logically become broader-based and mature, with participation of more AMCs flush with investors' money for investing in smallcap stocks too.
4. The only impediment could be that AMCs may themselves prefer the closed-ended route to tap this category - for making more money for themselves too !
5. Sebi should now have a relook into this aspect - say, by making it mandatory on all enetering AMCs to have open-ended NFOs in this category first, before allowing closed-ended NFOs.
6. Proper selection of smallcap stocks by midcap funds will largely decide their performance (alpha), as there will now be a much greater overlap of 150 midcap stocks among their portfolios.
7. A similar situation could come in large cap funds (min.80% largecap stocks) as significant alpha can now come by including small cap stocks (due to limited midcap stocks) too in their portfolios, at higher risk.
8. Hence, we may also likely see the increasing importance of passively-managed Largecap Index funds (as against active largecap funds) among investors who may not appreciate this risk, if taken by their existing fund managers.
9. We could also see the emergence of passively-managed Midcap Index funds (due to its limited 150 stock domain), which would be a welcome step.
10. For long-term 10-yr+ investment, the pole position of Multicap funds may get further strengthened due to these developments, as they can wade into any market caps to take market cycles in their stride, with lesser risk to growth-oriented goal-based portfolios.
2. On the other hand, with 1000+ stocks to choose from, and only 13 of 40 AMCs in the frey currently, a spate of NFOs could come in the smallcap fund category.
3. In the process, the market could logically become broader-based and mature, with participation of more AMCs flush with investors' money for investing in smallcap stocks too.
4. The only impediment could be that AMCs may themselves prefer the closed-ended route to tap this category - for making more money for themselves too !
5. Sebi should now have a relook into this aspect - say, by making it mandatory on all enetering AMCs to have open-ended NFOs in this category first, before allowing closed-ended NFOs.
6. Proper selection of smallcap stocks by midcap funds will largely decide their performance (alpha), as there will now be a much greater overlap of 150 midcap stocks among their portfolios.
7. A similar situation could come in large cap funds (min.80% largecap stocks) as significant alpha can now come by including small cap stocks (due to limited midcap stocks) too in their portfolios, at higher risk.
8. Hence, we may also likely see the increasing importance of passively-managed Largecap Index funds (as against active largecap funds) among investors who may not appreciate this risk, if taken by their existing fund managers.
9. We could also see the emergence of passively-managed Midcap Index funds (due to its limited 150 stock domain), which would be a welcome step.
10. For long-term 10-yr+ investment, the pole position of Multicap funds may get further strengthened due to these developments, as they can wade into any market caps to take market cycles in their stride, with lesser risk to growth-oriented goal-based portfolios.