The past quarter has been the best in 17 years --- or 68 quarters --- for the Sensex during which the benchmark rallied nearly 50%.
Naturally, there was a case for investment in passively managed funds --- that which just buy the benchmark index.
But actively managed funds, which claim that through systems, processes and fund manager's abilities pick and choose stocks that outperform, have failed miserably. The 78 such schemes, which charge a fee for their outperformance, have not matched the 49.3% rise in the Sensex during the quarter ended June 30.
Of these, 26 schemes returned less than 40% and three below 30%. The others have returned between 40% and 49.1%
At the same time, five of seven index funds that track the Sensex have returned in excess of 50%.
The top-performing one, UTI Master Index (G) returned 50.96%, the Tata Index Sensex (G) 50.83%, the HDFC Index Sensex Plus(G) 50.82%, and funds from Franklin India and LIC Mutual 50.71% and 50.55%, respectively.
Remember, these funds charge less fees compared with active funds.
Clearly, fear was the key to underperformance as fundmen, burnt by the October meltdown and falling markets in the first quarter, took a cautious approach and stayed out of stocks.
At the end of March, over 15% of the equity diversified funds' assets were held in cash. Even after the substantial rally during April, funds continued to hold significant cash and shied away from investing in high-beta stocks such as infrastructure, real estate and midcaps.
"Both investors and the mutual fund industry missed out on the rally. Many were sitting on cash and deployed it only towards the latter half of the rally," said Vivek Pandey, equity fund manager at SBI Mutual Fund.
Funds which had stayed invested in so-called high growth sectors such as infrastructure and high-momentum midcap space were winners during the period.
What's interesting is four of top five best performing schemes come from one fund house. JM Financial's Core -11-1, Basic doubled investor money.
JM'sEmerging Leaders,and Small and Midcap Funds have given returns in excess of 85%. Other big gainers include mid cap funds of Principal, Magnum, Sahara and ING. Fund managers argue that looking at returns over such a short term is not advisable.
"Investors should not try and time the market. They should invest in a disciplined fashion with a horizon which is longer than 3-6 months. They should at least be looking at a period of 2-3 years, and the longer the better," said Harsha Upadhyaya, fund manager at UTI Mutual Fund.
Much of the rise in the markets has been attributed to foreign fund flows.
Foreign institutional investors (FIIs) have put in Rs 36,560 crore over the period of the rally. The outlook for the Indian markets is still strong over the long-term added experts although over the last two weeks they have been net sellers by Rs 2,889 crore.During the period, the Sensex has risen by 6,500 points.
"FIIs have come into India in 2009, except for the last two weeks.They were selling last year because of redemption pressure, but at some level FIIs would turn buyers," said Harsha Upadhyaya.
A better political scenario post the elections also bode well for the Indian markets says Pandey.
"Previously FIIs have pointed to the stable political authority in China as a reason for their preference of the country to India. Now our country has a stable and strong government which should be a positive for flows to the country," he said.
Naturally, there was a case for investment in passively managed funds --- that which just buy the benchmark index.
But actively managed funds, which claim that through systems, processes and fund manager's abilities pick and choose stocks that outperform, have failed miserably. The 78 such schemes, which charge a fee for their outperformance, have not matched the 49.3% rise in the Sensex during the quarter ended June 30.
Of these, 26 schemes returned less than 40% and three below 30%. The others have returned between 40% and 49.1%
At the same time, five of seven index funds that track the Sensex have returned in excess of 50%.
The top-performing one, UTI Master Index (G) returned 50.96%, the Tata Index Sensex (G) 50.83%, the HDFC Index Sensex Plus(G) 50.82%, and funds from Franklin India and LIC Mutual 50.71% and 50.55%, respectively.
Remember, these funds charge less fees compared with active funds.
Clearly, fear was the key to underperformance as fundmen, burnt by the October meltdown and falling markets in the first quarter, took a cautious approach and stayed out of stocks.
At the end of March, over 15% of the equity diversified funds' assets were held in cash. Even after the substantial rally during April, funds continued to hold significant cash and shied away from investing in high-beta stocks such as infrastructure, real estate and midcaps.
"Both investors and the mutual fund industry missed out on the rally. Many were sitting on cash and deployed it only towards the latter half of the rally," said Vivek Pandey, equity fund manager at SBI Mutual Fund.
Funds which had stayed invested in so-called high growth sectors such as infrastructure and high-momentum midcap space were winners during the period.
What's interesting is four of top five best performing schemes come from one fund house. JM Financial's Core -11-1, Basic doubled investor money.
JM'sEmerging Leaders,and Small and Midcap Funds have given returns in excess of 85%. Other big gainers include mid cap funds of Principal, Magnum, Sahara and ING. Fund managers argue that looking at returns over such a short term is not advisable.
"Investors should not try and time the market. They should invest in a disciplined fashion with a horizon which is longer than 3-6 months. They should at least be looking at a period of 2-3 years, and the longer the better," said Harsha Upadhyaya, fund manager at UTI Mutual Fund.
Much of the rise in the markets has been attributed to foreign fund flows.
Foreign institutional investors (FIIs) have put in Rs 36,560 crore over the period of the rally. The outlook for the Indian markets is still strong over the long-term added experts although over the last two weeks they have been net sellers by Rs 2,889 crore.During the period, the Sensex has risen by 6,500 points.
"FIIs have come into India in 2009, except for the last two weeks.They were selling last year because of redemption pressure, but at some level FIIs would turn buyers," said Harsha Upadhyaya.
A better political scenario post the elections also bode well for the Indian markets says Pandey.
"Previously FIIs have pointed to the stable political authority in China as a reason for their preference of the country to India. Now our country has a stable and strong government which should be a positive for flows to the country," he said.
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