This mutual fund category beat historical champion tech sector MFs last year

Technology sector-focused equity mutual funds have been consistent long-term outperformers, topping the returns charts across all peers. Be it over a 10-year horizon or five-year or three-year, equity mutual funds investing in technology stocks have been generating the highest annualised returns.

While the sector had generated annual returns that are just a tad higher than a close competitor over a ten-year period, it has comprehensively beaten all spaces over the last five years as also the last three years.

However, one category of mutual funds had a heady year in 2021. This category, which has been close behind technology-focused equity mutual funds historically, moved ahead last year.

Equity mutual funds that focus on small-cap stocks as a category topped the mutual fund charts last year, churning out nearly 60% growth as compared with the 56.2% returned by technology equity mutual funds.

Indeed, technology mutual funds bounced back with best returns over the last three months as also the last one month. But assessing the equity mutual fund performance over a short period is not the best way to judge them.

Then again, given the huge returns churned out by tech mutual funds over three-year and five-year periods, it would take more consistent performance hereafter if the small-cap category funds can take the baton away from funds chasing tech stocks.

If we dig deeper to check which small-cap equity mutual funds performed better than the category at large, we find a large number of schemes. These include Quant Small Cap, L&T Emerging Businesses, Nippon India Small Cap, Tata Small Cap, Canara Robeco Small Cap, BOI Axa Small Cap, Kotak Small Cap, HDFC Small Cap, HSBC Small Cap, IDBI Small Cap, Edelweiss Small Cap, Invesco India Small Cap, Union Small Cap and Sundaram Small Cap.

The Quant fund had the highest sectoral exposure to construction, FMCG, healthcare, textiles, chemicals and metal stocks in that order. Here, construction includes real estate, infrastructure as well as cements as categories.

Interestingly, Quant’s fund had its single-largest exposure to a large cap stock that has been a rank underperformer over the last few years—ITC.