M100 Midcap ETF from Motilal Oswal AMC. Any good?

Finally!!! Someone is introducing a midcap ETF in the market place. I have been waiting for it a long time. It provides great value for certain type of investors but for the others, its existence does not matter. I see this faltering in short term but could do well in 5-7 years as markets expand.

I was amazed to see some of the reasons why one should invest which are totally and utterly incorrect. First, let me hightlight who will get benefited with M100.

1. Any investor who is looking for liquidity in the midcap space will and should invest in M100 ETF
2. Anyone who is indifferent to midcap stocks but wants a piece of it could invest

Now the reasons which should NOT make you invest.

M50 ETF is successful:
How do you define success? Is it the size or the performance? For me it is performance with a reasonable size. Motilal M50 has managed to generate over Rs 300 crores in assets which is commendable. However, its performance does not seem convincing so far. Due to the recent correction, it has managed to catch up with Nifty Index but still lags it. At one stage, it was underperforming Nifty by about 4%which is significantly huge.

Five months is short period to form an opinion about the instrument but I hope it does well and provides an alternative to investors seeking alpha at lower cost. The performance of the ETF vs Nifty is shown below:
Better returns than Nifty:
There is a wide spread perception that more risk means more returns. Hence, Midcap index outperforms large cap index at all times. This is incorrect. If one carries more risk, the expectation of return is higher. Whether that would generate more returns is still questionable. Thanks to 2007-08 market crisis, the performance of CNX Midcap lags that of Nifty for three and five year horizons. It is also the case with one year and six months horizon as well. The following table shows the same.
There seems to be a crisis every decade. There seems atleast one period of lack of confidence every year. Hence putting all eggs in one basket is not a good idea.

Most midcaps under perform CNX Midcap index:
I read that one should invest in M100 midcap ETF because most midcaps underperform the midcap index. This is true. But what we are missing is that the top five midcap funds that manage nearly 75% of the midcap AUM have consistently beaten the CNX Midcap index. This outperformance is huge. If I were a long term investor, I would rather invest in these funds than in the ETF. It needs to be seen if the ETF does as well as the index. After all there are 20 stocks that have daily traded three month average value of less than 5 crores. Illiquidity could be a major issue for the success of the fund.
The key takeaway is that the long term investors are better off investing in midcap funds rather than the ETF. The additional expense of 1-1.5% is offset by the outperformance of the funds. This will be the case until the information asymmetry exists between various stakeholders.