Are some of India's most popular funds losing sheen?
Aug 19, 2013

Author: PersonalFN Content & Research Team


It would be rare to find an investor who is unmoved even after the recent fall in Indian equity indices. Considering the dire state of India’s economy, falling equities shouldn’t surprise investors but the manner in which they are shunned nowadays, is worrisome even for an experienced investor. Recently S&P BSE Sensex fell about 800 points in a day posting its steepest fall since July 2009. This might have recalled memories of the bear market of 2008-09. Rupee is hitting fresh lows every day sending shivers down the spine of investors. Measures taken by RBI and the government have fallen flat. Well, under such difficult circumstances, it is crucial to know how some of India’s largest mutual fund schemes have performed. Their performance should be compared with the performance of broader markets.

How markets have fared?

NAV data as on August 16, 2013
(Base = Rs 10,000)
(Source: ACE MF, PersonalFN Research)

As depicted in the graph above, largecaps have escaped relatively unscathed in the recent market downturn. S&P BSE Sensex about 8.1% over last 3 months. Decline in the midcap space has been severe with S&P BSE Mid-cap falling by around 17.5%. S&P BSE 200 which represents broader markets registered a loss of 11.9% over last 3 months.

Report card...
1 Month 3 Months YTD#
Category Average- Largecap Funds -7.4 -10.9 -9.0
Category Average- Midcap Funds -7.8 -12.5 -16.6
Category Average- Multi-Flexi-Opportunities Funds -7.1 -10.7 -11.2
Category Average- Multi-Flexi-Value Oriented Funds -7.4 -12.1 -13.5
S&P BSE 200 -9.0 -12.2 -9.7
Returns are absolute and in %
# YTD: Year to date i.e. From January 01, 2013 to August 16, 2013
NAV data as on August 16, 2013
(Source: ACE MF, PersonalFN Research)

The table above suggests that largecap oriented funds and multi-flexi and opportunities funds have outperformed the broader markets over the past 3 months. On the other hand, Midcap focused funds and value oriented funds underperformed S&P BSE 200 other the same time period. However, it is noteworthy that performance of all diversified equity funds has been satisfactory as about 2/3rd of them have outpaced S&P BSE 200 on 3-month returns.

Have these popular funds disappointed investors?
Scheme Name 1 Month 3 Months YTD# AUM
HDFC Top 200 Fund (G) -8.9 -16.3 -14.4 10,874.80
HDFC Equity Fund (G) -9.1 -17.1 -16.2 10,328.47
Reliance Equity Opportunities Fund (G) -6.4 -14.8 -15.8 4,914.62
Reliance Growth Fund (G) -7.9 -14.6 -19.5 4,268.71
UTI Dividend Yield Fund (G) -8.4 -12.3 -12.7 3,120.03
S&P BSE 200 -9.0 -12.2 -9.7 -
AUM data as per portfolios disclosed on July 31, 2013
AUM:Rs in Crore
# YTD: Year to date i.e. From January 01, 2013 to August 16, 2013
Returns are absolute and in %
NAV data as on August 16, 2013
(Source: ACE MF, PersonalFN Research)

HDFC Top 200 and HDFC Equity, which together have a corpus of in excess of Rs 20,000 crore, have miserably underperformed S&P BSE 200 over last 3 months. Moreover, they have underperformed on YTD basis. HDFC Top 200 is a largecap oriented fund while HDFC equity is a flexicap fund. Reliance equity opportunities fund which focuses on investment opportunities across sectors and market capitalisation segments, has also underperformed broader markets. Among others, Reliance Growth, a midcap oriented fund and UTI Dividend Yield which follows the tenets of value investing have made losses in excess of those made on S&P BSE 200.

Where have some of India’s largest funds invested?
Sector HDFC Equity Fund (G) HDFC Top 200 Fund (G) Reliance Equity Opportunities Fund (G) Reliance Growth (G) UTI Dividend Yield Fund(G)
Banking & Finance 18.19 21.9 13.81 9.78 17.75
Information Technology 16.12 14.7 15.82 18.85 14.48
Oil & Gas / Petroleum Products 8.53 7.71 - - 7.82
Consumer Non-Durables 8.2 8.76 - 7.16 12.5
Pharmaceuticals - 6.56 12.57 13.23 -
Auto 7.15 - - - -
Engineering - - 17.21 8.61 -
Media & Entertainment - - 7.81 - -
Cement - - - - 8.45
Data as per portfolios disclosed on July 31, 2013
(Source: ACE MF, PersonalFN Research)

A deeper study revealed that heavy exposure to Banking and Finance, Oil & Gas, Auto and Engineering has resulted in them underperforming broader markets. High single stock exposure has contributed further to the loss. Although most of these funds have invested in index heavy largecap stocks belonging to Banking and Finance, Oil & Gas and Engineering sector, they have been overweight on such stocks in comparison to their weight in the diversified indices. Moreover, some index heavy consumer non-durable names are missing from the portfolios. This suggests that underperformance is a result of market momentum. Above given funds carry relatively stable portfolios.

What investors should do now?
PersonalFN is of the view that, in the short term, funds can be volatile and may even underperform the broader markets. Mutual funds essentially are for long term investors. Current underperformance of some of India’s biggest mutual fund schemes may be just a blip caused by economic aberrations. However, PersonalFN believes, investors need to be watchful of their performance over a little longer time horizon. Consistent underperformance would highlight weakness of these funds. As noted above, funds catering to different market capitalisations and following different investment styles have underperformed broader markets. However, long term performance of most of them remains promising even now. Importantly, they come from fund houses following sound investment processes. It remains to be seen when these funds would start bucking the downtrend. PersonalFN has always believed that buying popular funds doesn’t guarantee you any success. There is no alternative to meticulous assessment of available options. PersonalFN remains unbiased to the popularity of funds and carries out assessment of mutual funds with marked perseverance.

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