The Best Mutual Funds – Quantitative

Introduction

Mutual fund investors are faced with a zillion choices in the marketplace. At last count, there were more than 5300 different schemes that an investor could choose from. When confronted with such a large number of choices, investors either spiral into an “analysis paralysis” mode and end up doing nothing or blindly invest in whatever their broker recommends – both these paths lead to situations that are injurious to the investor’s long-term financial health.

In this post, we try to simplify the choices in front of the investor by ranking the top 10 funds based these risk metrics: sharpe ratio, bear-beta, information ratio, draw-down depth and draw-down length between Jan-2010 and May-2015.

Sharpe Ratio

Fund	SHARPE	IRR
ICICI Prudential Blended Plan A – Regular Plan – Growth	0.35	2.12
Birla Sun Life MNC Fund-Plan B (Growth)	0.10	24.25
UTI – MNC Fund (UGS 10000)-Growth Option	0.09	17.14
Edelweiss Absolute Return Fund – Growth Option	0.08	3.87
Birla Sun Life Asset Allocation Fund-Conservative Plan-Growth Plan	0.08	2.14
Franklin India Pension Plan-Growth	0.08	3.67
Escorts Leading Sectors Fund – Growth Option	0.07	5.79
Axis Long Term Equity Fund – Growth	0.07	17.29
ICICI Prudential Balanced Advantage Fund – Regular Plan – Growth	0.07	5.57
HDFC Balanced Fund – Growth Option	0.07	8.11

The Sharpe ratio is a measure of risk-adjusted performance of a fund.

Glad to see the two MNC funds that we have been recommending our clients make the top end of this list.

But also note the single digit IRR funds.

Bear-Beta

Fund	BETA BEAR	IRR
ICICI Prudential Blended Plan A – Regular Plan – Growth	-0.03	2.12
Birla Sun Life International Equity Fund Plan A- Growth	0.05	4.81
Bsl Comm Eq Fund – Global Agri Plan – Growth	0.08	1.56
Birla Sun Life Asset Allocation Fund-Conservative Plan-Growth Plan	0.20	2.14
Edelweiss Absolute Return Fund – Growth Option	0.25	3.87
Franklin Asian Equity Fund – Growth Plan	0.27	2.71
Franklin India Pension Plan-Growth	0.30	3.67
ICICI Prudential Moderate – Regular Plan – Growth	0.33	2.81
Franklin India Dynamic PE Ratio Fund of Funds-Growth	0.37	2.86
ICICI Prudential Very Aggressive – Regular Plan – Growth	0.41	2.37

Bear Beta is a measure of the sensitivity of a fund’s return to negative changes in its benchmark’s return.

Given the single digit IRRs that test will for this metric, investors can ignore the bear-beta.

Information Ratio

Fund	IR	IRR
HDFC MID-CAP OPPORTUNITIES FUND – Growth Option	2.05	15.96
JPMorgan India Mid and Small Cap Fund – Regular Plan – Growth Option	1.95	13.96
Religare Invesco MID N SMALL CAP Fund – Growth Option	1.84	16.84
Canara Robeco Emerging Equities – Regular Plan – GROWTH	1.83	17.31
ICICI Prudential Value Discovery Fund – Regular Plan – Growth	1.73	13.27
Franklin India Smaller Companies Fund-Growth	1.71	15.23
UTI Mid Cap Fund-Growth Option	1.69	12.55
Birla Sun Life MNC Fund-Plan B (Growth)	1.57	24.25
Religare Invesco Mid Cap Fund – Growth Option	1.55	13.35
Axis Long Term Equity Fund – Growth	1.53	17.29

The information ratio is a ratio of the portfolio’s returns above the returns of a benchmark (CNX MIDCAP, in this case) to the volatility of those returns.

This is probably a better metric than the Sharpe ratio to rank funds.

Nice to see that both the Value Discovery fund and an MNC fund make this list.

Draw-down Depth

Fund	DRAW DEPTH	IRR
ICICI Prudential Blended Plan A – Regular Plan – Growth	-0.35	2.12
Edelweiss Absolute Return Fund – Growth Option	-7.46	3.87
Birla Sun Life Asset Allocation Fund-Conservative Plan-Growth Plan	-9.69	2.14
Franklin India Pension Plan-Growth	-10.87	3.67
ICICI Prudential Moderate – Regular Plan – Growth	-11.57	2.81
Birla Sun Life Asset Allocation Fund-Moderate Plan-Growth Plan	-12.05	2.71
Franklin India Dynamic PE Ratio Fund of Funds-Growth	-12.06	2.86
ICICI Prudential Balanced Advantage Fund – Regular Plan – Growth	-13.00	5.57
ICICI Prudential Balanced Fund – Regular Plan – Growth	-13.26	7.30
ICICI Prudential Very Aggressive – Regular Plan – Growth	-13.81	2.37

Draw-down depth measures the max-loss from peak valuation.

For example, the Blended Plan at the top of the list only lost 0.35% from its peak valuation between 2010 and 2015.

Portfolios with a lot of short-term bonds test well for this metric. But note the pathetic IRRs – no pain = no gain!

Draw-down Length

Fund	DRAW LENGTH	IRR
Franklin India Dynamic PE Ratio Fund of Funds-Growth	110.00	2.86
HDFC Balanced Fund – Growth Option	126.00	8.11
ICICI Prudential Balanced Fund – Regular Plan – Growth	126.00	7.30
ICICI Prudential Balanced Advantage Fund – Regular Plan – Growth	128.00	5.57
UTI – MNC Fund (UGS 10000)-Growth Option	140.00	17.14
Birla Sun Life MNC Fund-Plan B (Growth)	141.00	24.25
Franklin India Pension Plan-Growth	158.00	3.67
Birla Sun Life International Equity Fund Plan A- Growth	190.00	4.81
Principal Global Opportunities Fund-Growth Option	194.00	1.71
Sundaram Global Advantage Fund Growth	207.00	1.44

The draw-down length is a measure of how many days it took the fund to get back the previous peak valuation after a draw-down.

Shorter bounce-backs typically indicate high-quality portfolios.

Nice to see both the MNC funds make this list.

Past Performance

Fund	BETA	IRR
Birla Sun Life MNC Fund-Plan B (Growth)	0.55	24.25
Canara Robeco Emerging Equities – Regular Plan – GROWTH	0.78	17.31
Axis Long Term Equity Fund – Growth	0.69	17.29
UTI – MNC Fund (UGS 10000)-Growth Option	0.54	17.14
Religare Invesco MID N SMALL CAP Fund – Growth Option	0.73	16.84
HDFC MID-CAP OPPORTUNITIES FUND – Growth Option	0.76	15.96
Franklin India Smaller Companies Fund-Growth	0.76	15.23
JPMorgan India Mid and Small Cap Fund – Regular Plan – Growth Option	0.80	13.96
Religare Invesco Mid Cap Fund – Growth Option	0.74	13.35
ICICI Prudential Value Discovery Fund – Regular Plan – Growth	0.78	13.27

We wanted to check if higher returns were achieved by taking higher risk. Given the low betas (against CNX MIDCAP), it looks like these funds have taken the “right” risk.

Conclusion

We looked at broad spectrum of funds – including those with bond allocations – to ferret out a good set of funds that investors can consider. Depending on what is more important to the investor, the appropriate set of metrics can be weighted to fit individual risk appetites.

Mutual fund investors whom we advise will immediately recognize some of these funds as they are already part of their portfolios. Get in touch with us if you are looking to invest! Call us or Whatsapp us at +918026650232