There is one event that occurs with alarming regularity in the mutual funds segment. Every time the equity markets hit a purple patch, a handful of funds hog the limelight. These funds deliver such superlative performances over shorter time frames, that it is hard to ignore them. The strong buzz surrounding the funds leads investors to believe that ignoring them would be a foolhardy move. It's a different matter that when the tide turns (read markets lose steam), such funds more often than not suffer the most. In effect, minus the rising markets, these funds lose their charm and end up as mundane investment propositions; a bit like 'one hit wonders'.
And it doesn't take much to deliver a blistering performance in conducive markets; all a fund has to do is take on high risk. In rising markets, sacrificing prudence at the altar of performance is often the mantra for success. For example, the fund could take concentrated bets in stocks and sectors that are the season's flavour. And such a strategy works fine so long as the markets are northward bound. Given how markets have moved over the last few years, we have more than a few funds that have made the most of rising markets.
On the other end of the spectrum are 'all-weather' funds. Their forte is delivering steady performances. It is unlikely that these funds will feature in weekly, monthly or half-yearly rankings. All the same, they continue to do their bit in a silent mode. More importantly, when the markets hit a rough patch, they will do a significantly better job on the damage control front vis-a-vis their 'one hit wonder' peers. As a result, over a market cycle, these funds will deliver a better showing as opposed to their flamboyant peers and in the process also expose investors to lower risk levels.
What makes an 'all-weather' fund tick is prudent fund management. The fund steers clear of risky investment calls and in the process forgoes short-term gains. But this brand of fund management does deliver over the long-term. And that's what equity investing is all about - the long-term (which is at least 3-5 years in our view). Expectedly, the investment advisor/financial planner has a role to play in ensuring that 'all-weather' funds find a place in your portfolio over ones that are simply the season's flavour.
This week equity markets fell sharply and closed in negative terrain. The BSE Sensex fell by 8.71% to close at 19,014 points; the S&P CNX Nifty closed at 5,705 points (down by 7.98%). The CNX Midcap posted a loss of 6.75%, before settling at 8,368 points.
| Equity Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| JM Telecom | 13.42 | -9.98% | -3.45% | 1.53% | 27.56% | 5.47% | 0.33% |
| UTI GSF Software | 20.80 | -8.77% | -9.09% | -23.19% | -29.47% | 6.91% | 0.03% |
| Sundaram Select Focus | 97.83 | -8.50% | -2.28% | 39.56% | 55.81% | 8.04% | 0.42% |
| Franklin Opportunities | 36.29 | -8.37% | -3.52% | 20.11% | 32.34% | 8.32% | 0.37% |
| UTI GSFServices | 68.57 | -8.17% | 1.51% | 21.90% | 32.45% | 6.34% | 0.35% |
(Standard Deviation highlights the element of risk associated with the fund. Sharpe Ratio is a measure of the returns offered by the fund vis-a-vis those offered by a risk-free instrument)
Sector/thematic funds dominated the losers' list in the equity funds segment. JM Telecom (-9.98%) emerged as the biggest looser, followed by UTI GSF Software (-8.77%) and Sundaram Select Focus (-8.50%).
| Debt Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| ING Gilt | 12.96 | 0.75% | 3.42% | 5.06% | 6.91% | 0.65% | -0.14% |
| Birla Gilt Plus | 26.52 | 0.58% | 4.64% | 8.88% | 14.29% | 1.20% | 0.25% |
| Kotak Bond | 21.76 | 0.51% | 2.67% | 6.96% | 11.87% | 0.61% | 0.33% |
| Sahara Gilt | 13.12 | 0.47% | 1.35% | 3.31% | 6.02% | 0.36% | -0.05% |
| Kotak Gilt Investment | 25.85 | 0.46% | 4.04% | 6.40% | 9.83% | 1.04% | 0.05% |
ING Gilt (0.75%) topped the long-term debt funds segment; Birla Gilt Plus (0.58%) and Kotak Bond (0.51%) occupied second and third positions respectively.
| Balanced Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| Canara Robeco Balanced II | 50.79 | -6.48% | -0.63% | 21.62% | 32.92% | 5.52% | 0.34% |
| LIC MF Balanced | 68.25 | -6.14% | -2.42% | 39.87% | 46.52% | 6.99% | 0.34% |
| Escorts (ESCO.BO, news) Balance | 72.63 | -6.12% | -0.48% | 35.39% | 49.22% | 6.26% | 0.40% |
| FT India Balanced | 43.70 | -5.73% | -1.74% | 15.01% | 30.16% | 5.21% | 0.37% |
| ICICI (ICIC.BO, news) Pru. Balanced | 44.33 | -5.72% | -0.27% | 16.14% | 22.56% | 4.92% | 0.32% |
Canara Robeco Balanced II (-6.48%) suffered the most in the balanced funds segment. LIC MF Balanced (-6.14%) and Escorts Balance (-6.12%) also featured in the losers' list.
Ever wondered how at times, mutual funds with similar portfolios have disparate performances to show for. In effect, it's a case of similar portfolios yielding different results! It should be understood although the portfolios are similar at present, they may have originated at different points in time. Similarly, the possibility of one of the funds having maintained a higher cash allocation in a particular month that coincided with a crash in equity markets cannot be ruled out. These are just some instances that explain the disparate performances. While investors taking efforts to study portfolios is a welcome sign, the need to adopt the right approach in order to make an accurate evaluation cannot be overstated.
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