According to the press release, the key differentiator of IDFC Midcap Fund is that it will follow a 5 Filter Framework for the selection of stocks, helping build a high- quality, growth-orientated portfolio. This investment framework selects companies based on five fundamental parameters including Governance/Sustainability, Capital Efficiency, Competitive Edge, Scalability, and Acceptable Risk/Reward.
Governance/Sustainability involves selecting companies based on factors such as strong governance, capital allocation track record, and a sustainable business model, enabling the fund manager to take a long-term view of the business. Capital Efficiency provides a structural opportunity for a business to earn an optimal return on the invested capital, which is key to creating value for shareholders. Companies with a Competitive Edge in the industry could develop a strong franchise network, resulting in a value proposition for customers through cost/product differentiation.
Scalability paves the path for a larger market share, which could boost the earnings growth of the company in the long term. Acceptable Risk/Reward is also an important parameter to evaluate companies considering the fact that it is important to buy businesses at the right price and if this discipline is not adhered to, it could lead to sub-optimal investment outcomes.
“With the escalating inflationary pressures on the Indian economy, investors have realized the importance of investing in growth-oriented assets which could facilitate capital appreciation over the long term. The midcap segment demonstrates an opportunity for wealth creation over the years, a compelling risk-reward balance, and exhibits a broader sectoral representation compared to large-caps, thereby offering significant potential for growth with reasonable stability over the long term. IDFC AMC has long-standing expertise in managing assets under the midcap segment under its existing funds, and market relative valuations turning more attractive, IDFC Midcap Fund will provide investors an opportunity to benefit from the robust growth potential of fundamentally strong mid-cap companies,” said Vishal Kapoor, CEO, IDFC Asset Management Company Limited (AMC).
“IDFC Midcap Fund has a bottom-up investing approach for the construction of the portfolio, facilitating focus on the business-specific aspects and aligning the execution with a long-term view. While the fund invests predominantly in the mid-cap category, it adopts a disciplined approach and is flexible to allocate up to 35% of its net assets towards companies from the large-cap and small-cap categories. The 5-filter framework for stock selection includes parameters that evaluate the governance of the company, capital allocation track record, a structural opportunity for the business to earn an optimal return on the invested capital, the value proposition for customers and shareholders, long-term earnings growth potential and an acceptable risk/reward opportunity. The fund is suitable for long-term investors who aim to invest in a diversified portfolio with participation across sectors and are looking to complement their core portfolio allocation with relatively higher long-term growth prospects,” said Sachin Relekar, Fund Manager for IDFC Midcap Fund.