Author: shyam

Mutual Fund Performance in Bear Markets

Introduction

During our discussion on Relative Strength Spread, we saw how the relative performance between winners and losers were compressed in the bear markets of 2011, 2012 and 2013. During these doldrums, most active investment strategies fail to outperform their benchmarks. Since most mutual fund investments span multiple bull and bear markets, it makes sense to have a look at how funds performed in the most recent bear market.

For our analysis, we took funds that had more than 90% allocated in equities and ignored sector and international funds. We then applied the same benchmark, the CNX Midcap Index, to make sure that we had an apples-to-apples comparison. A total of 200 funds were analyzed.

The 10 worst funds

Information Ratio

Fund IR IRR
HSBC Progressive Themes Fund – Growth
-0.99
-0.29
JM Basic Fund – Growth Option
-0.48
-0.21
HSBC Midcap Equity Fund – Growth
-0.44
-0.21
DSP BlackRock India T.I.G.E.R. Fund – Regular Plan – Growth
-0.43
-0.17
JM Multi Strategy Fund – Growth option
-0.28
-0.16
HDFC Core and Satellite Fund – GROWTH
-0.11
-0.12
JM Equity Fund-Growth
-0.00
-0.10
BARODA PIONEER GROWTH FUND – Plan A – Growth Option
0.01
-0.09
Sundaram S.M.I.L.E.Fund-Growth
0.02
-0.09
HDFC Premier Multi-Cap Fund-Growth
0.07
-0.08

Sharpe Ratio

Fund SHARPE IRR
HSBC Progressive Themes Fund – Growth
-0.02
-0.29
HSBC Midcap Equity Fund – Growth
-0.01
-0.21
JM Basic Fund – Growth Option
-0.01
-0.21
DSP BlackRock India T.I.G.E.R. Fund – Regular Plan – Growth
-0.01
-0.17
JM Multi Strategy Fund – Growth option
-0.01
-0.16
HDFC Core and Satellite Fund – GROWTH
-0.01
-0.12
BARODA PIONEER GROWTH FUND – Plan A – Growth Option
-0.00
-0.09
HDFC Premier Multi-Cap Fund-Growth
-0.00
-0.08
Sundaram S.M.I.L.E.Fund-Growth
-0.00
-0.09
JM Equity Fund-Growth
-0.00
-0.10

Beta

Fund BETA IRR
HSBC Progressive Themes Fund – Growth
1.19
-0.29
JM Basic Fund – Growth Option
1.15
-0.21
HSBC Midcap Equity Fund – Growth
1.07
-0.21
DSP BlackRock India T.I.G.E.R. Fund – Regular Plan – Growth
0.98
-0.17
JM Multi Strategy Fund – Growth option
1.02
-0.16
HDFC Core and Satellite Fund – GROWTH
0.84
-0.12
JM Equity Fund-Growth
0.92
-0.10
BARODA PIONEER GROWTH FUND – Plan A – Growth Option
0.91
-0.09
Sundaram S.M.I.L.E.Fund-Growth
0.92
-0.09
Reliance Vision Fund-GROWTH PLAN-Growth Option
0.90
-0.08

Bear Beta

Fund BETA BEAR IRR
HSBC Progressive Themes Fund – Growth
1.18
-0.29
HSBC Midcap Equity Fund – Growth
1.13
-0.21
JM Basic Fund – Growth Option
1.09
-0.21
JM Multi Strategy Fund – Growth option
0.98
-0.16
DSP BlackRock India T.I.G.E.R. Fund – Regular Plan – Growth
0.95
-0.17
Sundaram S.M.I.L.E.Fund-Growth
0.95
-0.09
Reliance Focused Large Cap Fund-Growth Plan-Growth Option
0.93
0.07
Principal Growth Fund-Growth Option
0.91
0.09
HDFC Top 200 Fund – Growth Option
0.91
0.04
Taurus Discovery Fund – Growth Option
0.91
0.04

Draw down depth

Fund DRAW DEPTH IRR
HSBC Progressive Themes Fund – Growth
-48.31
-0.29
HSBC Midcap Equity Fund – Growth
-45.71
-0.21
JM Basic Fund – Growth Option
-41.83
-0.21
JM Multi Strategy Fund – Growth option
-37.54
-0.16
Principal Emerging Bluechip Fund – Growth Option
-36.49
0.06
DSP BlackRock India T.I.G.E.R. Fund – Regular Plan – Growth
-35.52
-0.17
Sundaram S.M.I.L.E.Fund-Growth
-34.50
-0.09
ICICI Prudential MidCap Fund – Regular Plan – Growth
-33.43
0.01
JM Tax Gain Fund – Growth option
-33.33
-0.05
HDFC Core and Satellite Fund – GROWTH
-32.50
-0.12

Draw down length

Fund DRAW LENGTH IRR
BARODA PIONEER GROWTH FUND – Plan A – Growth Option
715.00
-0.09
Birla Sun Life Advantage Fund – Regular Growth
715.00
-0.00
Birla Sun Life Special Situations Fund – Growth
715.00
-0.06
DSP BlackRock India T.I.G.E.R. Fund – Regular Plan – Growth
715.00
-0.17
DWS Investment Opportunity Fund – Growth Option
715.00
-0.04
DWS TAX SAVING FUND-GROWTH
715.00
-0.03
DWS Alpha Equity Fund – Growth
715.00
-0.02
Edelweiss Value Opportunities Fund – Growth Option
715.00
-0.02
HDFC Core and Satellite Fund – GROWTH
715.00
-0.12
HDFC Premier Multi-Cap Fund-Growth
715.00
-0.08

The 10 best funds

Information Ratio

Fund IR IRR
Mirae Asset Emerging Bluechip Fund – Regular Plan – Growth Option
2.23
0.33
HDFC MID-CAP OPPORTUNITIES FUND – Growth Option
1.69
0.25
Birla Sun Life India Gennext Fund-Growth Option
1.66
0.30
BNP Paribas Mid Cap Fund-Growth Option
1.65
0.31
Religare Invesco MID N SMALL CAP Fund – Growth Option
1.64
0.29
Axis Long Term Equity Fund – Growth
1.61
0.32
ICICI Prudential Value Discovery Fund – Regular Plan – Growth
1.44
0.20
Reliance Equity Opportunities Fund-Growth Plan-Growth Option
1.43
0.20
Religare Invesco Mid Cap Fund – Growth Option
1.41
0.24
IDFC Tax Advantage (ELSS) Fund-Regular Plan-Growth
1.35
0.19

Sharpe Ratio

Fund SHARPE IRR
Birla Sun Life MNC Fund-Plan B (Growth)
0.04
0.36
Mirae Asset Emerging Bluechip Fund – Regular Plan – Growth Option
0.03
0.33
Axis Long Term Equity Fund – Growth
0.03
0.32
BNP Paribas Mid Cap Fund-Growth Option
0.03
0.31
Religare Invesco MID N SMALL CAP Fund – Growth Option
0.03
0.29
SBI MSFU EMERGING BUSINESSES FUND – REGULAR PLAN -GROWTH
0.03
0.30
Birla Sun Life India Gennext Fund-Growth Option
0.03
0.30
Franklin Asian Equity Fund – Growth Plan
0.03
0.30
Sundaram Global Advantage Fund Growth
0.03
0.27
Franklin India Dynamic PE Ratio Fund of Funds-Growth
0.03
0.18

Beta

Fund BETA IRR
Birla Sun Life MNC Fund-Plan B (Growth)
0.50
0.36
Mirae Asset Emerging Bluechip Fund – Regular Plan – Growth Option
0.76
0.33
Axis Long Term Equity Fund – Growth
0.73
0.32
BNP Paribas Mid Cap Fund-Growth Option
0.69
0.31
Birla Sun Life India Gennext Fund-Growth Option
0.76
0.30
Religare Invesco MID N SMALL CAP Fund – Growth Option
0.70
0.29
HDFC MID-CAP OPPORTUNITIES FUND – Growth Option
0.73
0.25
SBI Magnum MIDCAP FUND – REGULAR PLAN – GROWTH
0.71
0.24
Religare Invesco Mid Cap Fund – Growth Option
0.69
0.24
BNP Paribas Long Term Equity Fund – Growth Option
0.68
0.22

Bear Beta

Fund BETA BEAR IRR
Franklin India Dynamic PE Ratio Fund of Funds-Growth
0.43
0.18
Tata Ethical Fund Plan A – Growth
0.55
0.21
Templeton India Equity Income Fund-Growth Plan
0.55
0.07
Birla Sun Life MNC Fund-Plan B (Growth)
0.56
0.36
Birla Sun Life India Opportunities Fund-Plan B (Growth)
0.64
0.12
Canara Robeco Large Cap+ Fund – Regular Plan – Growth
0.65
0.17
Franklin India Taxshield-Growth
0.66
0.16
Religare Invesco AGILE Fund – Growth Option
0.67
0.09
Canara Robeco Emerging Equities – Regular Plan – GROWTH
0.68
0.19
Canara Robeco Equity Taxsaver – Regular Plan – Growth
0.68
0.14

Draw down depth

Fund DRAW DEPTH IRR
Franklin India Dynamic PE Ratio Fund of Funds-Growth
-12.06
0.18
Canara Robeco Large Cap+ Fund – Regular Plan – Growth
-14.30
0.17
UTI Opportunities Fund-Growth Option
-14.33
0.18
Axis Long Term Equity Fund – Growth
-16.95
0.32
BNP Paribas Long Term Equity Fund – Growth Option
-17.01
0.22
UTI India Lifestyle Fund – Growth Option
-17.30
0.20
Canara Robeco Equity Diversified – Regular Plan – Growth
-17.44
0.15
Franklin India Taxshield-Growth
-17.45
0.16
ICICI Prudential Focused Bluechip Equity Fund – Regular Plan – Growth
-17.66
0.17
Canara Robeco Equity Taxsaver – Regular Plan – Growth
-17.96
0.14

Draw down length

Fund DRAW LENGTH IRR
Franklin India Dynamic PE Ratio Fund of Funds-Growth
113.00
0.18
Canara Robeco Large Cap+ Fund – Regular Plan – Growth
145.00
0.17
Birla Sun Life MNC Fund-Plan B (Growth)
147.00
0.36
Mirae Asset Emerging Bluechip Fund – Regular Plan – Growth Option
172.00
0.33
HDFC Growth Fund – Growth Option
229.00
-0.01
Religare Invesco Mid Cap Fund – Growth Option
232.00
0.24
Axis Long Term Equity Fund – Growth
235.00
0.32
Kotak Emerging Equity Scheme – Growth
238.00
0.03
Birla Sun Life India Gennext Fund-Growth Option
258.00
0.30
UTI India Lifestyle Fund – Growth Option
266.00
0.20

Conclusion

The Birla MNC fund stands out as one having the most points in its favour: low and shallow drawdown, better sharpe and higher returns. The next stand outs were the Axis Long-term equity fund and the Mirae Asset Emerging Bluechip Fund.

In terms of the worst funds, HSBC Progressive Themes was definitely regressive to your wealth. JM Basic and Sundram SMILE funds also laid a deuce.

Mutual funds are marketed as wealth builders. However, the truth is that most of them struggle. At last count, there were more than 5300 different schemes that you could choose from.

Are you getting the right advise? Get in touch with us if you are looking to invest! Call us or Whatsapp us at +918026650232

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Relative Strength Spread

Introduction

The Relative Strength Spread takes all the stocks in the CNX 500 index, sorts them by their relative performance vs. the index and takes the ratio between the median relative performance of the top decile and the bottom decile. When you plot the spread, a rising chart indicates that relative strength leaders are performing better than relative strength laggards.

Relative Strength Spread Charts

CNX 500.relative-spread-index.50

CNX 500.relative-spread-index.100

CNX 500.relative-spread-index.365

High Relative Strength Spread environments provide the largest momentum profits – winning trades easily eclipse losing trades.

The 365-day RS-Spread chart clearly demarcates the “Modi-Mania.” The Modi-Mania was manna from heaven for trend-following strategies. However, the post-Modi-Mania phase has seem most momentum algorithms struggle.

A silver-lining is that the 50-day chart shows that we are probably due for a momentum comeback. But it is not uncommon to have prolonged periods of the “doldrums” where momentum is just “average.” It maybe tempting to give up on trend-following strategies during these periods. But just like how we cannot predict momentum crashes, we cannot predict momentum comebacks. So it is important to maintain allocation to momentum strategies.

Conclusion

The Relative Strength Spread index can be useful in explaining momentum profits. However, it is not much of a predictor of future momentum returns. It could also be used to explain the “skill vs. luck” question of returns – just like how a rising tide lifts all boats, a high RS-Spread environment will lift all portfolio returns.

Going forward, we will update the 50-day Relative Strength Spread chart on our weekly Index Update posts.

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Weekly Recap: Satisficers vs. Maximizers

world.2015-05-29.2015-06-05

Equities

Major
DAX(DEU) -1.90%
CAC(FRA) -1.74%
UKX(GBR) -2.57%
NKY(JPN) -0.50%
SPX(USA) -0.92%
MINTs
JCI(IDN) -2.22%
INMEX(MEX) -0.47%
NGSEINDX(NGA) -1.88%
XU030(TUR) -0.74%
BRICS
IBOV(BRA) -0.84%
SHCOMP(CHN) +8.92%
NIFTY(IND) -3.78%
INDEXCF(RUS) +2.66%
TOP40(ZAF) -0.63%

Commodities

Energy
RBOB Gasoline -3.14%
Brent Crude Oil -3.70%
Ethanol +0.45%
Heating Oil -4.31%
Natural Gas -1.63%
WTI Crude Oil -2.76%
Metals
Copper -1.09%
Gold 100oz -1.74%
Palladium -3.29%
Silver 5000oz -3.59%
Platinum -1.44%

Currencies

USDEUR:-1.13% USDJPY:+1.34%

MINTs
USDIDR(IDN) +0.50%
USDMXN(MEX) +2.09%
USDNGN(NGA) -0.17%
USDTRY(TUR) -0.06%
BRICS
USDBRL(BRA) -1.37%
USDCNY(CHN) +0.09%
USDINR(IND) -0.11%
USDRUB(RUS) +7.20%
USDZAR(ZAF) +3.61%
Agricultural
Cattle +0.36%
Cocoa -0.05%
Coffee (Arabica) +6.25%
Coffee (Robusta) +5.63%
Corn +2.49%
Cotton -0.31%
Orange Juice +2.32%
Soybean Meal -0.36%
Soybeans +0.59%
Wheat +8.48%
White Sugar +0.26%
Feeder Cattle -0.40%
Lean Hogs -2.47%
Lumber +6.70%
Sugar #11 +0.58%

Credit Indices

Index Change
Markit CDX EM -0.43%
Markit CDX NA HY -0.19%
Markit CDX NA IG +1.22%
Markit iTraxx Asia ex-Japan IG +0.08%
Markit iTraxx Australia -0.48%
Markit iTraxx Europe +1.11%
Markit iTraxx Europe Crossover +9.04%
Markit iTraxx Japan +2.79%
Markit iTraxx SovX Western Europe -0.09%
Markit LCDX (Loan CDS) -0.02%
Markit MCDX (Municipal CDS) -1.87%

Nifty Heatmap

CNX NIFTY.2015-05-29.2015-06-05

Index Returns

For a deeper dive into indices, check out our weekly Index Update.
index performance.2015-05-29.2015-06-05

Sector Performance

sector performance.2015-05-29.2015-06-05

Advance Decline

advance.decline.line2.2015-05-29.2015-06-05

Market Cap Decile Performance

Decile Mkt. Cap. Adv/Decl
1 (micro) -6.46% 61/68
2 -4.39% 51/78
3 -7.87% 53/76
4 -5.49% 48/81
5 -3.90% 56/73
6 -5.88% 54/75
7 -3.66% 58/71
8 -3.13% 53/76
9 -3.46% 60/69
10 (mega) -2.78% 63/66
Looks like a page out of the pulp-fiction novel: “Blood Bath and Beyond…”

Top Winners and Losers

ZEEL +3.97%
BRITANNIA +6.47%
GODREJCP +6.79%
RPOWER -15.33%
SUNPHARMA -12.23%
RCOM -11.83%
Markets found some solace in biscuits and shampoo…

ETF Performance

INFRABEES +0.14%
GOLDBEES -0.63%
CPSEETF -2.14%
JUNIORBEES -2.45%
NIFTYBEES -3.27%
BANKBEES -6.22%
PSUBNKBEES -7.48%
Banks went from boost to woost…

Yield Curve

yield Curve.2015-05-29.2015-06-05

Bond Indices

Sub Index Change in YTM Total Return(%)
GSEC TB +0.33 +0.06%
GSEC SUB 1-3 +0.37 -0.38%
GSEC SUB 3-8 +0.20 -0.95%
GSEC SUB 8 -0.06 +0.40%
This is totally mind-blasting: yields went up on a week when rates were cut.

Investment Theme Performance

Tactical CNX 100 +0.00%
Auto and Consumer Goods Quality to Price -1.86%
Balance Sheet Strength -2.86%
Media, Health, IT, Telecom, Services, Pharma Quality To Price -3.11%
PPFAS Long Term Value -3.49%
Next Trillion -3.55%
Financial Strength Value -3.64%
CNX 100 Enterprise Yield -3.73%
Textile, Metals, Chemicals, Paper and Energy Quality to Price -3.95%
Magic Formula -3.95%
Low Volatility -4.07%
The RBI Restricted List -4.85%
ASK Life -5.16%
Quality to Price -5.56%
Momentum -6.57%
High Beta -8.95%
ADAG stocks -10.28%
Cash was the only investment strategy that worked. Momentum gave up most of last month’s gain this week…

Equity Mutual Funds

Best
DWS Arbitrage Fund – Regular Plan – Growth +0.42%
Indiabulls Arbitrage Fund – Regular Plan – Growth Option +0.39%
BIRLA SUN LIFE ENHANCED ARBITRAGE FUND – RETAIL PLAN – GROWTH +0.38%
HDFC ARBITRAGE FUND RETAIL PLAN GROWTH OPTION +0.38%
HDFC ARBITRAGE FUND WHOLESALE PLAN GROWTH OPTION +0.38%
Reliance Arbitrage Advantage Fund – Growth Plan – Growth Option +0.37%
L&T Arbitrage Opportunities Fund – Growth Option +0.36%
Worst
HDFC INFRASTRUCTURE FUND-GROWTH OPTION -4.48%
Birla Sun Life Special Situations Fund – Growth -4.49%
Birla Sun Life Advantage Fund – Regular Growth -4.65%
Sundaram S.M.I.L.E.Fund-iNST Growth -4.87%
Reliance Tax Saver (ELSS) Fund-Growth Plan-Growth Option -4.89%
Sundaram S.M.I.L.E.Fund-Growth -4.90%
Sundaram Growth Fund-Growth -4.96%

Bond Mutual Funds

Best
Escorts Income Plan-Growth +0.15%
Kotak Coporate Bond Fund- Retail Plan-Growth Option +0.14%
Baroda Pioneer Credit Opportunities Fund -Plan B-Growth Option +0.14%
Kotak Corporate Bond Fund- Standard Plan-Growth Option +0.13%
Baroda Pioneer Credit Opportunities Fund -Plan A -Growth Option +0.12%
DWS Premier Bond Fund – Regular Plan-/-Growth Plan +0.07%
DWS PREMIER BOND FUND INST PLAN GROWTH +0.05%
Worst
IDFC GSF-Provident Fund-Regular Plan-Growth -1.42%
IDFC GSF-Provident Fund-Inst Plan B-Growth -1.42%
Birla Sun Life Govt, Securities Long Term Fund-Plan B (Growth) -1.43%
Kotak Gilt-Investment Provident Fund and Trust-Growth -1.46%
Kotak Gilt-Investment Regular-Growth -1.46%
Religare Invesco GILT Fund – Long Duration Plan – Growth -1.52%
ICICI Prudential Long Term Gilt Fund – Regular Plan – Growth -1.58%

Thought for the weekend

Psychology professor Barry Schwartz, author of The Paradox of Choice, divided us into two types of people: “satisficers” (those who satisfy and then suffice) and “maximizers,” who seek out the best.

Thanks to smartphones and the Internet, our options are unlimited, whether it’s a retail item or a romantic possibility. We have all become maximizers.

While we may think we know what we want, we’re often wrong.

Source: Modern Romance

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The Problem with Balanced Funds

Returns vs. Volatility

Balanced funds are those that invest in both stocks and bonds. The exact allocation is up to the fund manager. For example, the Tata Balanced fund is right now 22.85% in bonds and the rest in equities, according to Morningstar.

tata balanced asset allocation

Balanced funds are pitched as having lesser risk than equity-only funds. But what investors gain in lesser volatility, they give up on lower returns and higher fees.

Tata Balanced vs. ICICI Pru. Value Discovery

Between 2007-01-02 and 2015-06-02, Tata Balanced Fund has returned a cumulative 235.97% with an IRR of 15.48% vs. ICICI Prudential Value Discovery Fund’s cumulative return of 316.55% and an IRR of 18.47%download

Compare the drawdowns:

drawdowns tatas vs icici

For the moderate-risk taking investor who is typically attracted to balanced funds, a 16% drawdown hurts just as much as a 27% drawdown.

When it comes to fees, Tata’s has an expense ratio of 2.91% vs. ICICI’s 2.34%. Is the extra 50bps worth the safety offered?

HDFC Balanced Fund vs. ICICI Pru. Value Discovery

It is a similar deal with HDFC’s Balanced fund as well: lower returns (IRR: 15.24%) and no escape from double-digit drawdownsdownload

Conclusion

The sales-pitch for balanced funds focus on the investors availability heuristic where people tend to heavily weigh their judgments toward more recent information, making new opinions biased toward that latest news. Ever since the market corrected in March a growing flock of blogs and articles started pitching balanced funds. But before you fall for the marketing pitch, take a step back and ensure that you are not giving too much away for perceived safety.

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The Walter Mitty Effect

Walter Mitty is a fictional character in James Thurber’s short story “The Secret Life of Walter Mitty.” Mitty is a meek, mild man totally intimidated by his overbearing wife. He deals with it by daydreaming that he is transformed into a courageous hero.

Investors are a bit like Walter Mitty, says social psychologist Dean G. Pruitt. When the market is doing well, they become brave in their own eyes and eagerly accept more risk. But when the market goes down, they rush for the door. So when you ask an investor directly to explain their risk tolerance, the answer comes from either a fearless bomber pilot (in a bull market) or a henpecked husband (in a bear market).

Source: http://pruitt.socialpsychology.org/

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