Hefty gains for MFs in downturn

Buy when there is blood in the streets, even if the blood is your own. The old adage on investing seems to have helped funds that were launched even in the thick of the stock market downturn in 2008-09. Most diversified equity mutual funds (MFs) that were launched between April 2008 and March 2009, a period during which benchmark indices plunged to new lows, have managed to beat benchmark indices and their category average.

Of the 10-odd diversified equity MFs that were launched during the period, a vast majority have moved ahead of key indices for the 1-year and the year-to-date period. Several funds have given a yearly return of between 22.2% and 39%. Principal Emerging Bluechip that hit the market during the height of the global financial crisis was the best among the lot gaining 44% in one year compared to the category return of 28.1% and the 17.1% return generated by sensex.

"During March 2009, when sensex was at (around) 8000 levels, the equity allocations of top ranked new entrants in the diversified equity category was above 90% as compared to 80% of its peers," said Tarun Bhatia, director, capital markets, CRISIL Research. "So when the markets rebounded from the lows of March 2009, the call of higher equity allocations of these funds paid rich dividends and the rest of the funds had to play catch up."

In fact, first time entrants bagged top ranks in the equity category in the latest CRISIL Mutual Fund Ranking announced for the quarter ended June 2010. The equity category saw 10 new entrants - six funds in the diversified equity segment and two funds each in the large cap and small & mid-cap equity categories. In all, three out of the six new entrants in the diversified equity category bagged the CRISIL Fund Rank 1.

The toppers also scored high on the risk-adjusted returns parameter compared to their category peers, CRISIL said. "Any fund that invests in a downturn gets a good brand value," said Sankaran Naren, CIO, equity, ICICI Prudential MF. "A downturn helps (a fund) in increasing absolute returns. Investors are more interested in getting better absolute returns," he said. Absolute return measure how much an asset has gained over a particular period and investing in a downturn helps in boosting it as units are picked at a low point.

Source: http://timesofindia.indiatimes.com/business/india-business/Hefty-gains-for-MFs-in-downturn/articleshow/6245757.cms