Indian stocks have doubled from their lows in early-March 2009, yet many diversified equity schemes of domestic mutual funds have not fully mirrored the stellar performance of equities in the past year. Returns from as many as half of the 200-odd diversified equity schemes have been below the category average from March 2009 to January 2010.
The schemes, which have underperformed the category and their benchmarks the most, include those from Religare AGILE, HSBC Dynamic Growth, JM Hi Fi and Fortis Equity Growth. These schemes have returned 38-55% in the period under review against the category average of 82%.
Investors could excuse fund houses for not being able to protect their holdings during the bear run January 2008-March 2009, as equity schemes in India are mostly structured to benefit from upsides. But these funds’ inability to capitalise on the rally in 2009 — the best year for equities since 1991— will worry their investors.
The causes of their inferior performance can be traced to excessive focus on select sectors at wrong points of time, and in some cases, the exit of some high-profile fund managers. While the movements of fund officials are beyond the reach of investors to base their investment decisions on this factor, analysts feel investors should keep a track of the portfolio of the fund house.
“It is better to exit funds that have not been able to deliver returns in the past year’s rally,” says Dhirendra Kumar, CEO, Value Research.
Fortis Equity Growth
This large-cap diversified equity scheme is probably the best example of funds that were unable to shuffle their portfolios in time from a one suited for a bear phase to that for a rally.
Amit Nigam, the scheme’s fund manager, says, “When the rally started in March, we stuck to a defensive portfolio, as we felt it was not backed by fundamentals. That’s the reason we were among the best performers till March. Though we changed our stance after the election, competition was already ahead of us.”
Religare AGILE
This fund works on mathematical models based on historical data. This means that a fund manager doesn’t actively manage the fund. Given that the algorithm was prepared based on data for many years, it was not prepared to work in the volatility that has been witnessed during the past many months.
HSBC Dynamic Growth
The scheme, which has returned 48% in the period, is again a case of sticking to defensive bets when the rally started. HSBC CIO Tushar Pradhan says, “The fund outperformed the benchmark in the bear market of FY09 (April 2008-March 2009) on account of a defensive portfolio and cash. However, the sharp rally of 2009 and the election day gap resulted in the fund underperforming its benchmark in ‘09.” The fund house says the scheme is “different from diversified equity funds”.
JM Hi Fi
Industry watchers say the fund house had grown on the strength of its ex-CIO Sandip Sabharwal, who was known for his aggressive investment strategy. By the time Sabharwal left under a cloud, the scheme was saddled with a few poorly-performing illiquid stocks that could not be sold swiftly. JM Mutual Fund officials didn’t respond to email queries.
Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Many-diversified-funds-falter-despite-bull-run/articleshow/5577917.cms
The schemes, which have underperformed the category and their benchmarks the most, include those from Religare AGILE, HSBC Dynamic Growth, JM Hi Fi and Fortis Equity Growth. These schemes have returned 38-55% in the period under review against the category average of 82%.
Investors could excuse fund houses for not being able to protect their holdings during the bear run January 2008-March 2009, as equity schemes in India are mostly structured to benefit from upsides. But these funds’ inability to capitalise on the rally in 2009 — the best year for equities since 1991— will worry their investors.
The causes of their inferior performance can be traced to excessive focus on select sectors at wrong points of time, and in some cases, the exit of some high-profile fund managers. While the movements of fund officials are beyond the reach of investors to base their investment decisions on this factor, analysts feel investors should keep a track of the portfolio of the fund house.
“It is better to exit funds that have not been able to deliver returns in the past year’s rally,” says Dhirendra Kumar, CEO, Value Research.
Fortis Equity Growth
This large-cap diversified equity scheme is probably the best example of funds that were unable to shuffle their portfolios in time from a one suited for a bear phase to that for a rally.
Amit Nigam, the scheme’s fund manager, says, “When the rally started in March, we stuck to a defensive portfolio, as we felt it was not backed by fundamentals. That’s the reason we were among the best performers till March. Though we changed our stance after the election, competition was already ahead of us.”
Religare AGILE
This fund works on mathematical models based on historical data. This means that a fund manager doesn’t actively manage the fund. Given that the algorithm was prepared based on data for many years, it was not prepared to work in the volatility that has been witnessed during the past many months.
HSBC Dynamic Growth
The scheme, which has returned 48% in the period, is again a case of sticking to defensive bets when the rally started. HSBC CIO Tushar Pradhan says, “The fund outperformed the benchmark in the bear market of FY09 (April 2008-March 2009) on account of a defensive portfolio and cash. However, the sharp rally of 2009 and the election day gap resulted in the fund underperforming its benchmark in ‘09.” The fund house says the scheme is “different from diversified equity funds”.
JM Hi Fi
Industry watchers say the fund house had grown on the strength of its ex-CIO Sandip Sabharwal, who was known for his aggressive investment strategy. By the time Sabharwal left under a cloud, the scheme was saddled with a few poorly-performing illiquid stocks that could not be sold swiftly. JM Mutual Fund officials didn’t respond to email queries.
Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Many-diversified-funds-falter-despite-bull-run/articleshow/5577917.cms
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