Category: Your Money

No.

Mutual fund conviction buys

Every month, mutual funds disclose their portfolios and investors go to work on them to find investment ideas. But should they? Tracking their conviction buys – stocks that are new additions to their portfolios – tell a different story.

Median T+5, T+10 and T+20 returns were -0.13%, -0.93% and -1.3%

You were actually worse off following them if you were looking for a quick trade.

Does this mean fund managers miss the mark?

No. Their reason for buying a stock makes sense for the strategy and portfolio that they are running. Their time horizon extends beyond 20-days. Using their actions to guide your trading decisions is what misses the mark.

How is this data useful?

This is basically a negative result. The next time some fund manager is asked what he is buying on TV or you come across a media item that lists the most bought stocks, curb your instinct to go out and buy them.

If you really like what a fund manager is doing with his portfolio, it is cheaper to buy his fund rather than trying to do it yourself.

Related:
Mutual Fund Exposure of Stocks
Mutual Fund Portfolio Disclosures

Know thy enemy

Mutual fund asset managers face a lot of ‘career risk’ if they make an unpopular bet and are proven wrong. They end up following the herd in selling on the face of bad news so it pays to keep an eye on the how much exposure funds have to a specific stock. If no mutual fund owns it then you could make a “deep value” case for an undiscovered gem. If a lot of funds own it, then it is probably a momentum play.

However, be vary of outsourcing your investment decisions. For instance, Canara Robeco Emerging Equities’ exposure to DCB Bank stood at 1.86% as per September’s portfolio disclosure – it was a new addition. The stock is down ~40% since it announced an ambitious expansion plan in October.

Fund Exposure on StockViz

The ‘Analysis’ section on the equity page gives a 6-month ownership history of a specific stock. For example, this is how it looks for DCB Bank:

Play around and let us know if you have any suggestions!