FundCompare: Pruning your Mutual Fund portfolio

The dilemma

Ownership of a diversified, un-correlated set of assets remains the touchstone of a well crafted portfolio. We had discussed how adding bonds to your equity portfolio reduces volatility before. However, comparing correlations between funds within the same asset class is a challenge.

For example, say you already have the Reliance Equity Opportunities Fund in your portfolio and your agent is pitching the Sundaram Select Midcap fund, how do you figure out whether to add to your existing holding of the Reliance fund, add an extra line item or switch to Sundaram?

Comparative returns

reliance_sund_returns

Between 2006-04-03 and 2014-12-19, Reliance’s Fund returned a cumulative 280.08% with an IRR of 16.55% vs. Sundaram’s cumulative return of 290.44% and an IRR of 16.91%.

As you can see, the wealth charts are almost on top of each other. The correlation chart confirms it:

reliance sund cor

Except for a few outliers, they are almost the same fund packaged differently.

Histogram of returns

The FundCompare tool also gives you the histogram of fund returns and the associated skewness. In this case, the Reliance Fund has a skew of -0.15 vs. Sundaram’s +0.22. Given that the average returns are more-or-less the same, this means that Sundaram’s Fund is better. Besides, it also appears that Sundaram’s Fund has a better Sharpe ratio.

Given that Reliance’s Fund has an expense ratio of 2.29% vs. Sundaram’s 2.26%, I would say “switch.”

Compare Your Funds

Before pulling the trigger based on what your fund broker/adviser tells you, get a free quantitative analysis of your options on our FundCompare tool.

Weekly Recap: Conflicts

world.2014-12-12.2014-12-19

Equities

Major
DAX(DEU) +2.00%
CAC(FRA) +3.23%
UKX(GBR) +3.88%
NKY(JPN) +1.44%
SPX(USA) +2.42%
MINTs
JCI(IDN) -0.31%
INMEX(MEX) +2.18%
NGSEINDX(NGA) -1.49%
XU030(TUR) +0.92%
BRICS
IBOV(BRA) +3.43%
SHCOMP(CHN) +5.80%
NIFTY(IND) +0.01%
INDEXCF(RUS) -0.72%
TOP40(ZAF) +2.96%

Commodities

Energy
Ethanol -5.78%
WTI Crude Oil -0.41%
RBOB Gasoline -1.60%
Brent Crude Oil -1.00%
Heating Oil -2.34%
Natural Gas -8.76%
Metals
Gold 100oz -2.18%
Palladium -1.18%
Platinum -2.83%
Copper -0.68%
Silver 5000oz -7.02%

Currencies

USDEUR:+1.82% USDJPY:+0.64%

MINTs
USDIDR(IDN) +0.24%
USDMXN(MEX) -0.68%
USDNGN(NGA) +0.83%
USDTRY(TUR) +0.75%
BRICS
USDBRL(BRA) +0.32%
USDCNY(CHN) +0.53%
USDINR(IND) +1.61%
USDRUB(RUS) +2.29%
USDZAR(ZAF) -0.08%
Agricultural
Cocoa +3.59%
Corn +3.53%
Soybean Meal -3.96%
Soybeans -1.39%
Coffee (Arabica) +0.57%
Cotton +0.12%
Feeder Cattle -2.39%
Orange Juice -5.25%
Sugar #11 -0.40%
Wheat +0.88%
Cattle -0.34%
Coffee (Robusta) -2.21%
Lean Hogs -6.49%
Lumber +0.29%
White Sugar +0.10%

Credit Indices

Index Change
Markit CDX EM -0.30%
Markit CDX NA HY +0.52%
Markit CDX NA IG +0.73%
Markit iTraxx Asia ex-Japan IG +8.59%
Markit iTraxx Australia +7.20%
Markit iTraxx Europe +4.16%
Markit iTraxx Europe Crossover +16.58%
Markit iTraxx Japan +2.11%
Markit iTraxx SovX Western Europe +2.94%
Markit LCDX (Loan CDS) -0.18%
Markit MCDX (Municipal CDS) +2.46%
All I can say about this week is that I am glad that its over.
The NIFTY ended flat for the week but that hides the roller-coaster ride it put investors through. After all the oil-related panic, the S&P ended up more than 2% for the week.
Oil ended down, dollar up.
Hopefully Santa visits before expiry.

Index Returns

index performance.2014-12-12.2014-12-19

Advance Decline

advance.decline.line2.2014-12-12.2014-12-19

Market Cap Decile Performance

Decile Mkt. Cap. Adv/Decl
1 (micro) -6.25% 63/74
2 -3.65% 63/73
3 -2.93% 64/73
4 -2.21% 61/75
5 -3.07% 63/73
6 -1.98% 65/72
7 -2.00% 56/80
8 -1.38% 64/73
9 -1.17% 64/72
10 (mega) -0.01% 68/69
The sell-off was brutal below the mega-caps…

Top Winners and Losers

ZEEL +5.45%
PETRONET +6.27%
PFC +8.11%
DLF -13.19%
BAJAJHLDNG -8.34%
RCOM -7.32%
Broad based action saw a mix of winners and losers…

ETF Performance

CPSEETF +3.32%
BANKBEES +0.98%
INFRABEES +0.54%
NIFTYBEES -0.03%
JUNIORBEES -0.22%
GOLDBEES -0.99%
PSUBNKBEES -1.93%
Banks withstood the onslaught well…

Yield Curve

yield Curve.2014-12-12.2014-12-19

Bond Indices

Sub Index Change in YTM Total Return(%)
GSEC TB +0.44 +0.04%
GSEC SUB 1-3 +0.43 -0.43%
GSEC SUB 3-8 +0.19 -0.53%
GSEC SUB 8 +0.08 -0.34%
Yields went up – breaking a long streak of falling rates.

Investment Theme Performance

Thought for the weekend

Asset managers and asset owners have a relationship beset with natural conflicts.

  1. Asset owners want fees below 10 bps; asset managers prefer “2% + 20%.”
  2. Asset owners want transparency; asset managers favor black-box opacity.
  3. Asset owners want simplicity; asset managers hire rocket scientists to create complex optimized solutions for sex appeal.
  4. Asset owners want “future” outperformance after they fund a manager; asset managers would be satisfied with strong past outperformance to facilitate future asset gathering.
  5. Asset owners want a bigger alpha; asset managers would happily sell them the possibility of alpha and charge handsomely for the service of selling hope.

Source: The Promise of Smart Beta

Opening Bell 19.12.2014

Your world at 9am

world.2014-12-19

Equities

Major
DAX(DEU) +2.79%
CAC(FRA) +3.35%
UKX(GBR) +2.04%
NKY(JPN) +1.92%
SPX(USA) +2.40%
MINTs
JCI(IDN) +0.61%
INMEX(MEX) +3.51%
NGSEINDX(NGA) +1.21%
XU030(TUR) +3.10%
BRICS
IBOV(BRA) -0.45%
SHCOMP(CHN) -1.02%
NIFTY(IND) +1.61%
INDEXCF(RUS) +4.49%
TOP40(ZAF) +4.79%

Commodities

Energy
Brent Crude Oil -0.02%
Ethanol +0.00%
Heating Oil +0.25%
Natural Gas +0.60%
RBOB Gasoline -0.05%
WTI Crude Oil +0.54%
Metals
Copper +0.00%
Gold 100oz +0.32%
Palladium +0.17%
Platinum +0.22%
Silver 5000oz +0.00%

Currencies

USDEUR:+0.01% USDJPY:+0.14%

MINTs
USDIDR(IDN) -0.56%
USDMXN(MEX) -0.08%
USDNGN(NGA) +1.43%
USDTRY(TUR) +0.04%
BRICS
USDBRL(BRA) -1.93%
USDCNY(CHN) +0.16%
USDINR(IND) -0.80%
USDRUB(RUS) -0.26%
USDZAR(ZAF) -0.30%
Agricultural
Cattle +0.00%
Cocoa +0.00%
Coffee (Arabica) +1.31%
Coffee (Robusta) +0.00%
Corn -0.55%
Cotton -0.25%
Feeder Cattle +0.00%
Lean Hogs +0.00%
Lumber -0.41%
Orange Juice -2.72%
Soybean Meal +0.00%
Soybeans -0.34%
Sugar #11 +1.77%
Wheat -1.56%
White Sugar +0.00%

Credit Indices

Index Change
Markit CDX EM +2.82%
Markit CDX NA HY +1.63%
Markit CDX NA IG -6.35%
Markit iTraxx Asia ex-Japan IG -6.00%
Markit iTraxx Australia +1.35%
Markit iTraxx Europe -4.21%
Markit iTraxx Europe Crossover -20.01%
Markit iTraxx Japan -4.37%
Markit iTraxx SovX Western Europe +0.03%
Markit LCDX (Loan CDS) +0.00%
Markit MCDX (Municipal CDS) -2.60%
Most markets in the green this morning. TGIF!!!

Must reads

Sebi’s debtor’s prison is here. (ET, #SEBI)

Soon European banks and fund managers having to specify and separate the costs of research and dealing commissions for each client. SEBI should do this next. (FT)

Indian auto dealers are getting disinter-mediated. And that’s a good thing. (LiveMint)

Barry Callebaut (Swiss, public), Cargill (US, private), and Olam (Singapore, public) will account for about 60% of the world’s cocoa processing. And top 5 chocolate makers that include Mars, Mondelez and Nestlé account for more than 65% of total confectionery sales. End result: Growers only get 6% of the chocolate bar, down from 16% in 1980. (FT)

Passive investing will one day become so popular that active investors can easily take advantage. (AICIO)

Good luck and have a nice weekend!