Category: Investing Insight

Investing insight to make you a better investor.

Mutual Fund Performance in Bear Markets

shyam June 10, 2015

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

Categories Investing Insight, Your Money Tags mutual funds

Relative Strength Spread

shyam June 7, 2015

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.

Categories Investing Insight, Your Money Tags momentum, quant

The Problem with Balanced Funds

shyam June 3, 2015

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%

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 drawdowns

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.

Categories Investing Insight, Your Money Tags mutual funds

The Walter Mitty Effect

shyam June 1, 2015

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/

Categories Investing Insight, Your Money Tags behavioral-finance

The Worst Mutual Funds – Quantitative

shyam May 29, 2015

Introduction

Our previous post looked at the 10 best mutual funds based on sharpe ratio, bear-beta, information ratio, draw-down depth and draw-down length between Jan-2010 and May-2015. Here are the 10 worst funds based on the same metrics.

As you can imagine, infrastructure funds performed poorly in this time-frame. We ignore them for now.

Sharpe Ratio

Fund	SHARPE	IRR
Mirae Asset Global Commodity Stocks – Growth Option	0.00	-0.16
JM Basic Fund – Growth Option	0.01	0.23
Escorts Tax Plan-Growth	0.01	0.79
HSBC Progressive Themes Fund – Growth	0.02	1.18
Religare Invesco PSU Equity Fund – Growth	0.02	0.87
JM Multi Strategy Fund – Growth option	0.02	1.56
Sundaram Growth Fund-Growth	0.02	1.37
Religare Invesco AGILE Fund – Growth Option	0.02	1.38
Sahara Star Value Fund-Growth Option	0.02	1.69
Bsl Comm Eq Fund – Global Agri Plan – Growth	0.02	1.56

Bear-Beta

Fund	BETA BEAR	IRR
HSBC Progressive Themes Fund – Growth	1.19	1.18
HSBC Midcap Equity Fund – Growth	1.12	3.11
Sundaram S.M.I.L.E.Fund-Growth	1.05	5.74
JM Basic Fund – Growth Option	1.03	0.23
Sahara Star Value Fund-Growth Option	1.01	1.69
Sahara Midcap Fund-Growth Plan	1.00	4.32
Escorts Leading Sectors Fund – Growth Option	0.97	5.79
DSP BlackRock India T.I.G.E.R. Fund – Regular Plan – Growth	0.96	2.02
JM Multi Strategy Fund – Growth option	0.95	1.56
DSP BlackRock Small and Mid Cap Fund – Regular Plan – Growth	0.93	7.76

Information Ratio

Fund	IR	IRR
JM Basic Fund – Growth Option	-1.14	0.23
Escorts Tax Plan-Growth	-0.81	0.79
Religare Invesco PSU Equity Fund – Growth	-0.75	0.87
Mirae Asset Global Commodity Stocks – Growth Option	-0.75	-0.16
HSBC Progressive Themes Fund – Growth	-0.67	1.18
Sundaram Growth Fund-Growth	-0.62	1.37
Sahara Super 20 Fund – Growth Option	-0.51	1.49
Sahara Growth Fund-Growth	-0.49	1.71
JM Multi Strategy Fund – Growth option	-0.49	1.56
Sundaram Select Focus-Growth	-0.48	1.57

Draw-down Depth

Fund	DRAW DEPTH	IRR
HSBC Progressive Themes Fund – Growth	-54.39	1.18
HSBC Midcap Equity Fund – Growth	-52.28	3.11
JM Basic Fund – Growth Option	-51.83	0.23
Escorts Tax Plan-Growth	-46.87	0.79
Escorts Leading Sectors Fund – Growth Option	-44.69	5.79
JM Multi Strategy Fund – Growth option	-42.41	1.56
Sahara Star Value Fund-Growth Option	-42.38	1.69
Religare Invesco PSU Equity Fund – Growth	-41.63	0.87
Principal Emerging Bluechip Fund – Growth Option	-40.74	8.64
Sundaram S.M.I.L.E.Fund-Growth	-40.61	5.74

Draw-down Length

Fund	DRAW LENGTH	IRR
JM Basic Fund – Growth Option	1092.00	0.23
Escorts Tax Plan-Growth	932.00	0.79
Escorts Leading Sectors Fund – Growth Option	842.00	5.79
JM Multi Strategy Fund – Growth option	840.00	1.56
HSBC Progressive Themes Fund – Growth	838.00	1.18
Religare Invesco PSU Equity Fund – Growth	824.00	0.87
JM Tax Gain Fund – Growth option	822.00	2.42
HSBC Midcap Equity Fund – Growth	820.00	3.11
DSP BlackRock India T.I.G.E.R. Fund – Regular Plan – Growth	808.00	2.02
SBI CONTRA – REGULAR PLAN -GROWTH	807.00	2.06

Past Performance

Fund	BETA	IRR
Mirae Asset Global Commodity Stocks – Growth Option	0.52	-0.16
JM Basic Fund – Growth Option	1.09	0.23
Escorts Tax Plan-Growth	0.82	0.79
Religare Invesco PSU Equity Fund – Growth	0.84	0.87
Taurus Infrastructure Fund -Growth Option	1.01	1.12
HSBC Progressive Themes Fund – Growth	1.18	1.18
Sundaram Growth Fund-Growth	0.85	1.37
Religare Invesco AGILE Fund – Growth Option	0.73	1.38
Sundaram Global Advantage Fund Growth	0.26	1.44
Sahara Super 20 Fund – Growth Option	0.75	1.49

Conclusion

Mutual funds are marketed as wealth builders. However, the truth is that most of them struggle. As you can see from the analysis here, there are quite a few of them with low-single-digit returns over 5-year time-frames. 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

Categories Investing Insight, Your Money Tags mutual funds, quant