Lagging Schemes of Leading Funds

Only a few fund houses exhibit superior performance on a continuous basis. Moneylife had identified these in the Cover Story “Best Fund Houses” (25 February 2010). We had found that some fund houses performed consistently well across different strategies and emerged on top even on other parameters like downside risk and size of assets under management (AUM). This time, we tried to identify which schemes from the stables of these fund houses were lagging behind in terms of performance over the past one year. We focused on the equity diversified schemes of the top seven fund houses according to our ranking and found that a few schemes of these asset management companies (AMCs) were among the bottom 25 percentile of the worst-performing schemes over the past one year.

Sundaram BNP Paribas Equity Multiplier Fund emerged the worst performer from the top-ranked fund houses. Over the past one year (30 September 2009–30 September 2010), the Fund has clocked 16% returns, while its benchmark (CNX Midcap) has zoomed 37% over the same period. This translates into an underperformance margin of 21%. This Fund has a mandate to invest in up to 40 stocks across sectors and market capitalisation categories. Its top picks were Indraprastha Gas, Polaris Software Labs, Development Credit Bank (DCB) and CESC. Polaris and DCB turned out to be average bets.

SBI Magnum MidCap Fund is another lagging scheme from a top-ranked fund house. This Fund yielded 22% returns during the past year, losing ground to its benchmark (CNX Midcap) which rose 37% during the same period. This Fund, which invests at least 65% of its assets in equities, currently holds a little less than 90% in stocks while the rest is invested in money-market instruments.

GlaxoSmithKline Consumer Healthcare, United Breweries, BEML and Swaraj Engines are among its top holdings.

One of Reliance Mutual Fund’s top performing schemes, the Reliance Equity Fund, has fared poorly over the past one year. With a 5% return during this period, the Fund has underperformed its benchmark (S&P Nifty), which clocked 19%. This Fund invests in stocks of top 100 companies by market capitalisation but has maintained limited exposure to equities. It holds as much as 11% of its portfolio in cash, while the rest is invested in companies like State Bank of India, ONGC, Tata Consultancy Services and Divi’s Laboratories.

Another Reliance scheme, the Reliance Natural Resources Fund, has also exhibited weak performance during this period. While its benchmark (BSE 200) has registered impressive gains of 21% in the past one year, the Fund has managed to deliver growth of only 8%. This Fund aims to capture growth opportunities in companies primarily engaged in the discovery, development, production, or distribution of natural resources. Among its top picks are HPCL, ONGC, NPCL and Reliance Industries (RIL). RIL has let it down badly. The Fund also has sizeable holdings in foreign entities like Potash Corporation of Saskatchewan, Market Vectors Agribusiness ETF and Peabody Energy.

Sundaram BNP Paribas SMILE Fund rounds off the list of underperforming schemes from leading fund houses. Although it has delivered decent returns of 26% over the past one year, its benchmark (S&P CNX Midcap) has outperformed with 37% returns. This Fund invests in a mix of small- and mid-cap stocks. Its portfolio appears to be more diversified than required with just 18% in the top five holdings which included TVS Motors, Ashok Leyland, LIC Housing Finance, Orchid Chemicals and Lupin.

Source: http://moneylife.in/article/81/11361.html