shyam – Page 84

The Non-Existent ETF Volumes

shyam July 19, 2015

ETFs don’t trade in India

The NIFTYBEES ETF – an ETF that is indexed to the NIFTY – has less daily volume than RELIANCE. Median daily volumes of NIFTYBEES is around 31,000 whereas RELIANCE sees more than 3161,000.

NIFTYBEES:

RELIANCE:

In spite of paying dealers to provide liquidity

The NSE introduced a Liquidity enhancement scheme (LES) for market making in equity exchange traded funds (ETFs) effective from December 15, 2014 till February 28, 2015. It was then extended to June 30, 2015 (see appendix). The results have been mixed.

BANKBEES:

JUNIORBEES:

M100:

Daily volumes of M100 went down during the program. Here is the full list, volumes in ‘000s:

The program might have resulted in tighter bid-ask spreads but there was no surge in volumes. Retail investors remain disinterested in ETFs.

Appendix

Categories Investing Insight, Your Money Tags ETF

Are Dividends Anti-Shareholder?

shyam July 19, 2015

Dividends vs. Buy-backs

When firms are left with excess cash, they have the option of distributing money back to shareholders by either issuing dividends or buying back their stock.

All things being equal, investors should be indifferent whether a company pays dividends or engages in a buy-back.

The dividend irrelevance argument

The underlying intuition for the dividend irrelevance proposition is simple. Firms that pay more dividends offer less price appreciation but must provide the same total return to stockholders, given their risk characteristics and the cash flows from their investment decisions. Thus, there are no taxes, or if dividends and capital gains are taxed at the same rate, investors should be indifferent to receiving their returns in dividends or price appreciation. (Source: NYU)

Indian Taxes

In India, long-term capital gains in equity investments attract zero tax. Long-term is one year. However, there is a dividend distribution tax of around 28%. So if a company decides to pay Rs. 100 in dividend, only Rs. 72 reaches the shareholder.

In this scenario, companies that declare dividends are taking a step that is against the interests of the share-holder. Investors are better off if the company buys back stock from the open market instead.

Here are some of the largest dividend payers:

	2015	2014
TCS	17020.50	5480.10
INFRATEL	1682.20	566.60
VEDL	3106.30	2214.40
ITC	4875.60	4238.60
WIPRO	2949.00	2327.30
HDFC	2505.90	1939.90
HINDUNILVR	2918.90	2495.60
TECHM	549.60	135.90
ICICIBANK	3084.10	2704.00
HINDZINC	1878.50	1532.50

The figures are in Rs. crores and nearly 1/3^rd of this goes to the tax-man.
One wonders if these companies are working for the Indian government instead of the shareholder.

Conclusion

Small investors and fund managers should demand that the boards consider buy-backs over dividends.

Categories Investing Insight, Your Money Tags investing

Weekly Recap: Sorry, monkeys

shyam July 18, 2015

world.2015-07-10.2015-07-17

Equities

Major
DAX(DEU)	+3.16%
CAC(FRA)	+4.51%
UKX(GBR)	+1.52%
NKY(JPN)	+4.40%
SPX(USA)	+2.37%

MINTs
JCI(IDN)	+0.22%
INMEX(MEX)	+1.04%
NGSEINDX(NGA)	-2.15%
XU030(TUR)	-0.04%

BRICS
IBOV(BRA)	-0.77%
SHCOMP(CHN)	+2.05%
NIFTY(IND)	+2.98%
INDEXCF(RUS)	+1.61%
TOP40(ZAF)	+1.81%

Commodities

Energy
Ethanol	-6.35%
Heating Oil	-4.58%
Brent Crude Oil	-2.84%
RBOB Gasoline	-4.64%
WTI Crude Oil	-3.77%
Natural Gas	+4.26%

Metals
Gold 100oz	-2.07%
Palladium	-5.52%
Platinum	-3.68%
Copper	-1.57%
Silver 5000oz	-5.13%

Currencies

USDEUR:+2.77% USDJPY:+1.02%

MINTs
USDIDR(IDN)	+0.29%
USDMXN(MEX)	+1.30%
USDNGN(NGA)	+0.79%
USDTRY(TUR)	-0.53%

BRICS
USDBRL(BRA)	+0.60%
USDCNY(CHN)	+0.00%
USDINR(IND)	+0.12%
USDRUB(RUS)	+1.11%
USDZAR(ZAF)	-0.81%

Agricultural
Cattle	-0.42%
Cocoa	+1.46%
Lean Hogs	-4.47%
Lumber	-6.25%
Orange Juice	-0.12%
Soybean Meal	-1.34%
White Sugar	-4.23%
Corn	-1.52%
Cotton	+0.08%
Feeder Cattle	+1.70%
Coffee (Arabica)	+3.49%
Coffee (Robusta)	-2.70%
Soybeans	-2.78%
Sugar #11	-3.63%
Wheat	-3.44%

Credit Indices

Index	Change
Markit CDX EM	+0.26%
Markit CDX NA HY	+0.77%
Markit CDX NA IG	-5.48%
Markit iTraxx Asia ex-Japan IG	-5.65%
Markit iTraxx Australia	-7.09%
Markit iTraxx Europe	-10.49%
Markit iTraxx Europe Crossover	-48.99%
Markit iTraxx Japan	-5.36%
Markit iTraxx SovX Western Europe	-4.75%
Markit LCDX (Loan CDS)	+0.00%
Markit MCDX (Municipal CDS)	-5.16%

Can we get an encore? Or are we going to start worrying about flaccid earnings and get depressed all over again?

Nifty Heatmap

Index Returns

For a deeper dive into indices, check out our weekly Index Update.

Sector Performance

Market Cap Decile Performance

Decile	Mkt. Cap.	Adv/Decl
1 (micro)	-3.26%	74/60
2	+3.45%	77/57
3	+5.42%	71/62
4	+4.33%	78/56
5	+3.93%	69/64
6	+3.81%	76/58
7	+3.51%	68/66
8	+4.40%	75/58
9	+2.30%	69/65
10 (mega)	+3.07%	69/65

An across the board rally…

Top Winners and Losers

INFRATEL	+7.56%
HINDPETRO	+8.00%
TATACHEM	+9.65%
SRTRANSFIN	-4.36%
BAJAJHLDNG	-2.82%
TITAN	-1.93%

Fall in oil prices lifted OMC stocks…

ETF Performance

NIFTYBEES	+3.14%
JUNIORBEES	+2.72%
BANKBEES	+2.63%
CPSEETF	+2.38%
INFRABEES	+1.33%
PSUBNKBEES	-0.43%
GOLDBEES	-1.56%

Large-caps dominated mid-caps. Gold hit 5-year lows in USD…

Yield Curve

Bond Indices

Sub Index	Change in YTM	Total Return(%)
0 5	+0.04	+0.04%
5 10	+0.05	-0.12%
10 15	+0.04	-0.16%
15 20	+0.06	-0.40%
20 30	+0.04	-0.28%

Long bonds got shellacked…

Investment Theme Performance

The RBI Restricted List	+10.00%
Quality to Price	+5.17%
Momentum	+5.02%
ADAG stocks	+4.58%
Financial Strength Value	+4.55%
Magic Formula	+4.24%
CNX 100 Enterprise Yield	+3.81%
Low Volatility	+3.48%
Tactical CNX 100	+2.92%
PPFAS Long Term Value	+2.56%
Balance Sheet Strength	+2.50%
Next Trillion	+2.42%
High Beta	+2.37%
ASK Life	+2.35%

No Theme left behind. A broad-based rally lifted all investment strategies.

Equity Mutual Funds

Best
HSBC Progressive Themes Fund – Growth	+4.69%
Reliance Small Cap Fund – Growth Plan – Growth Option	+4.50%
Sahara Wealth Plus Fund-Variable Pricing Option-Growth Option	+4.36%
Sahara Wealth Plus Fund-Fixed Pricing Option-Growth Option	+4.33%
Religare Invesco AGILE Fund – Growth Option	+4.25%
Sahara Infrastructure Fund —VARIABLE PRICING OPTION-Growth Option	+4.14%
Sahara Infrastructure Fund —FIXED PRICING OPTION-Growth Option	+4.10%

Worst
ICICI Prudential Blended Plan A – Regular Plan – Growth	+0.10%
Edelweiss Debt and Corporate Opportunities Fund – Growth Option	+0.10%
IDFC Arbitrage Plus Fund-Regular Plan-Growth	+0.10%
Canara Robeco Yield Advantage Fund – Regular Plan – Growth	+0.07%
Escorts Income Bond-Growth	+0.05%
BNP Paribas Income and Gold Fund – Growth	-0.20%
Canara Robeco InDiGo Fund – Regular Plan – Growth	-0.26%

Bond Mutual Funds

Best
Franklin India Banking & PSU Debt Fund – Growth	+0.27%
L&T Resurgent India Corporate Bond Fund – Growth Option	+0.25%
JPMorgan India Corporate Debt Opportunities Fund – Regular Plan – Growth Option	+0.22%
Baroda Pioneer Credit Opportunities Fund -Plan B-Growth Option	+0.22%
Franklin India Dynamic Accrual Fund-Growth	+0.20%
Escorts Income Plan-Growth	+0.19%
Baroda Pioneer Credit Opportunities Fund -Plan A -Growth Option	+0.19%

Worst
JPMorgan India Government Securities Fund – Regular Plan – Growth Option	-0.34%
Kotak Gilt-Investment Regular-Growth	-0.34%
Franklin India Govt.Sec. Fund-Long Term Plan – Growth	-0.34%
UTI – GILT ADVANTAGE-LONG TERM-GROWTH	-0.35%
Franklin India Govt.Sec. Fund-PF Plan – Growth	-0.36%
Franklin India Govt.Sec. Fund-Composite Plan – Growth	-0.36%
Religare Invesco GILT Fund – Long Duration Plan – Growth	-0.38%

Thought for the weekend

Mutual fund performance is similar to the performance of stocks. As a company matures and grows, more investors become aware of it, and its share price better reflects its prospects. This explains the phenomenon of how valuations and returns of benchmark indexes for smaller companies are usually higher than larger companies. Of course, they’re also riskier.

In the case of mutual funds, impressive alpha attracts more investor money to a fund, and that makes it more difficult to produce alpha since taking larger positions in stocks is going to have a greater impact on share prices.

Source: Can active managers beat dart-throwing monkeys?

Categories Your Money Tags weekly

Relative Returns of Midcap Funds

shyam July 17, 2015

Relative Returns

We wanted to see how different mutual funds compared to the CNX MIDCAP index. We took the annual returns of a dozen funds and subtracted the annual returns of the CNX MIDCAP index. This gives us an idea of how well the fund was managed.

The above result is a bit surprising. Other than the ICICI Prudential Value Discovery Fund, no other fund consistently beat the CNX MIDCAP index. Of course, returns are only half the story, these numbers don’t tell us the risks that were taken to achieve them.

Besides, none of the top funds in a year hold that position over the next (see this.)

Categories Investing Insight, Your Money Tags mutual funds, returns

Ten years is a long time

shyam July 15, 2015

Yearly Nifty and Defty Returns

When you look at the last 24 years of returns, the NIFTY gave negative returns for 8 years – 1/3rd of the time.

Holding period matters

The most frequent advice given to new equity investors is that they should at least have a 3-year horizon. The problem with this is that there have been 7 periods where cumulative 3-year returns have been negative or single digits. This sort of advice does nothing to mentally prepare the investor to stay disciplined.

In fact, dollar investors (NRIs, etc.) have had it rougher.

It is only when you look at 7-years and beyond that you start seeing the kind of returns that begin to make sense.

Long-term portfolio but short-term horizon

Very often, advisors set up portfolios looking at this:

Whereas the media is feeding the investor this:

Long-term investing works if you have the discipline to ignore portfolio returns over very long time horizons. But how many of us have the discipline to stay the course over decades?

Categories Investing Insight, Your Money Tags investing, NIFTY