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13 funds for any market
Debashis Basu, Shailendra Lotlikar and Saurav Agarwal, MoneyLife | May 11, 2007
What is the best way to choose a fund? There are no easy answers. If you go simply by performance, you will still have to decide about over which period are you analysing fund performance. In doing that you may also end up with funds that are skewed to a particular market climate.
Certain funds may do particularly well in a bull market and not in a bear market. What about funds that do well in the majority of market situations? Our cover story this time takes this novel approach. We sifted through the clutter of schemes currently on offer to investors, to select those that are worth considering as an option, no matter what the investment climate is like. This is important because it is not very hard for funds to perform in a rising market but to beat the market when the going gets tough is something that reflects the true character of a fund manager.
The list of the top performers based on this approach is listed below.
Here goes the analysis of the schemes, clustered by fund houses.
Reliance Mutual: Reliance's funds have been among the best performing, its schemes having come up high on the winners' list in almost every kind of fund analysis that we have done so far. For this analysis, two of its schemes have found a prominent place in our list of schemes that have performed well in almost any kind of market condition over the last four years. Reliance Growth scheme emerged right on top among those that have made it to our final 13.
The scheme returned 437 per cent over the seven periods that we have considered, having managed to beat its benchmark in six out of these seven periods. Its risk profile too has been pretty good with an average Sortino ratio of -0.38 in the four downward phases that the market has undergone. Among its latest top equity picks are JSW Steel, Reliance Industries, Jindal Saw, BEML and Divis' Laboratories.
The second scheme from Reliance to have found a place among the winners for all markets is the Reliance Vision Fund. The scheme returned 357 per cent over the seven periods that we have considered but it has been able to outperform its benchmark lesser number of times (4 times) than the Growth scheme.
Its risk profile was worse with a Sortino ratio of 0.51. In existence since October 1995 the scheme has over of 2,500 crore in assets. Among its top equity picks are Tata Motors, Siemens, Divis' Laboratories, Reliance Industries and Infosys.
Birla Mutual: Among the schemes that have managed to find a place in the top 13 funds for any season, three came from Birla Mutual. What characterises all these schemes was not the greatest returns but their exceptional quality of consistently outperforming their benchmarks.
Take for instance, its Equity Fund which was the second best performer on our list. It consistently outperformed its benchmark in six out of the seven periods, the highest for any fund. In terms of risk, this scheme too was placed somewhere in between with a Sortino ratio of -0.52. The fund has Rs 604 crore (Rs 6.04 billion) in assets under management and has 87 per cent invested in equities. Among its top equity picks are Bharti Televentures, Crompton Greaves, Maruti Udyog, Infosys and Satyam.
A second scheme from the Birla stable to have made it to the top was its Frontline Equity Fund. This scheme lagged even more in terms of returns. Indeed, it turned out to be at the bottom of our list purely in terms of performance, having provided 259 per cent return over seven distinct periods in the four years between January 2003 and March 2007.
What pushed it up in the ranking of best funds for any market was its ability to outperform its benchmark, having done so in six out of the seven periods and its low downside risk as reflected in the high Sortino ratio (-0.32). This scheme is a small one with Rs148 crore in assets under management. Like its Equity Fund, this scheme too has among its top picks stocks like Crompton Greaves and Bharati Televentures in addition to BHEL, HLL and TCS.
The last scheme from the Birla Mutual fold to have found a place among the top 13 was the Birla Advantage Fund which returned 289 per cent over the four-year. This scheme outperformed its benchmark in five out of the seven periods.
It however slipped where risk profile was concerned with a low Sortino ratio of 0.62, even though "the scheme aims at providing long-term growth of capital at relatively moderate levels of risk through a diversified research-based investment approach". The top picks in this scheme of Rs 471 crore (Rs 4.71 billion) were Bharti Televentures, ICICI Bank, BHEL and United Phosphorous.
HDFC Mutual Fund: Another fund house whose schemes prominently figure on the list of our winners for all seasons is HDFC Mutual Fund. Its Equity Fund ranked third on an overall ranking with a 330 per cent return between the seven periods that we have considered.
This scheme managed to beat its benchmark in five out of the seven periods that we have considered within these four years and had a very high Sortino ratio of -0.32, indicating a high degree of resilience in a declining market. This scheme is huge in size (Rs 3900 crore (Rs 39 billion) of assets), 98 per cent of which is invested in equities and only 2 per cent in money market instruments.
It has the highest exposure to equities among the 13 schemes. The portfolio is highly concentrated with a quarter of its assets as the top five picks, including Infosys, ONGC, Reliance, Crompton Greaves and Amtek Auto.
The second scheme from HDFC to have found a place on our final list was the HDFC Top 200 Fund. This scheme returned an aggregate 331 per cent in the seven periods between January 2003 and March 2007, outperforming its benchmark in six out of the seven periods.
This fund too has a low downside risk in declining market (Sortino ratio of -0.41). This ought have been exceptionally good given that the objective is to invest in a portfolio of stocks drawn specifically from the BSE 200 index. But the fund has managed its low downside risk by straying away from its investment objective. The scheme has around Rs 1,700 crore (Rs 17 billion) in assets under management, 96 per cent of which is invested in equities. This fund too has a very concentrated portfolio with a quarter of its assets invested in its top five picks, which include, ONGC, Reliance, ITC, Bharati Televentures and TCS.
DSP Merrill Lynch Mutual Fund: Its Opportunities Fund figured on our list of winners with an aggregate return of 342 per cent between January 2003 and March 2007 managing to outperform its benchmark five out of the seven periods that we have identified. This scheme too operates at a reasonably good Sortino ratio of -0.46. It manages around Rs 1,300 crore (Rs 13 billion) in assets of which 91 per cent is invested in equities. Among its top equity picks are Reliance, Satyam, L&T, Infosys and TCS.
Sundaram BNP Paribas Mutual Fund: The Select Midcap Fund of this fund house notched up one of the highest returns (466 per cent) over the seven periods between January 2003 and March 2007 but could beat the benchmark only in four out of the seven periods.
On the risk front too it was among the bottom five with a Sortino ratio of -0.56. This is a large scheme with Rs 2,034 crore (Rs 20.34 billion) in assets. Of this 71 per cent is now invested in equities and the rest 29 per cent in money market instruments.
Not only has it dared to keep 30 per cent of its money in cash, the fund has an unusual list of top equity picks - Jaiprakash Associates, Mphasis BFL, Polaris, BEL and Welspun Gujarat Stahl Rohren. Almost none of these stocks (except BEL) is among the top picks of other funds.
HSBC Mutual Fund: This fund house's Equity scheme returned an aggregate 343 per cent over the seven market cycles between January 2003 and March 2007 and managed to beat its benchmark in six out of those seven periods. The scheme, however, runs a higher risk with (Sortino ratio of -0.610) in a falling market.
The investment objective of the fund is to generate long-term capital appreciation by investing in a diversified range of large- and mid-sized companies with some exposure to smaller companies. The fund has Rs 936 crore (Rs 9.36 billion) in assets with top equity picks being Reliance, ONGC, Infosys and BHEL.
Franklin Templeton: Two of FT's schemes to have found a place among our list of 13 funds - Prima Plus Fund and the Franklin India Prima Fund. Franklin India Prima Plus Fund returned an aggregate 297 per cent over the seven periods but the Franklin India Prima Fund did much better having generated a 363 per cent return.
Both the schemes have managed to beat their benchmarks in five out of the seven periods. The Prima Plus Fund had a sound risk profile with a Sortino ratio of -0.39, but the Franklin India Prima Fund lagged on this count with a high riskiness in a falling market (Sortino of -0.63).
The Prima Plus manages Rs 949 crore (Rs 9.49 billion) in assets of which the top picks were Infosys, Bharti Televentures, MICO, Kotak Mahindra Bank and TV18. The Franklin India Prima Fund different from the rest of the pack because it focuses on smaller and faster growing companies. A larger fund with Rs 1,500 crore (Rs 15 billion) in assets, its top equity picks are Aditya Birla Nuvo, India Cements, Jaiprakash Associates, Fag Bearings and IPCA Laboratories.
Tata Mutual Fund: The last among the 13 was Tata Pure Equity Fund which returned an aggregate 337 per cent in the seven periods that we identified and managed to beat its benchmark in five out of these seven periods. It had a relatively low Sortino ratio of -0.62 underlining its riskiness in a bearish market. The fund size is small. Its Rs 305 crore (Rs 3.05 billion) assets are mainly invested in Reliance, Bharati Televentures, Infosys Technologies, BHEL and L&T.
To sum up, the real prowess of fund management lies in the strength of the fund manager to beat any kind of a market. Beating benchmarks in a rising market is no big deal but doing the same in a bearish environment is what really differentiates a good fund manager from a bad, and this is a trait that makes these 13 funds stand out in a crowd of funds that are on offer to the retail investor.