Small investors can stay nimble and can buy stocks in companies that big investors or funds cannot. If you are a small and smart investor, you should be able to generate market beating returns over the long-run. But what about funds that generate superior returns in spite of their large size? Given that portfolio disclosures have to be made every month and the manager cannot really predict the cashflows in and out of his fund, if he is consistently beating the market, it points to some real skill (or a really long streak of good luck, we’ll let you be the judge.)
Irrespective of whether it was skill or luck that produced the alpha, it makes sense for individual investors to track what different fund managers are doing. Besides, if you are thinking for buying or selling a fund, you should get comfortable with the manager. But how do you go about visualizing a fund?
NAV based metrics
Our FundCompare tool provides a convenient way to chart fund performance vs. different benchmarks, observe historical drawdowns, etc. For example, if you wanted to compare IDBI Equity Advantage Fund to the MNC index, you can do that with the tool. (http://svz.bz/1CQUAI0)
But what if you wanted to drill into the actual portfolio? Most websites give you a static snapshot of the portfolio on the latest disclosure date. But anybody who has managed money will know that portfolios are path-dependent.
Portfolio Videos
Given the sheer size of the data, it makes sense to try and visualize portfolios through videos. Here’s how the IDBI Equity Advantage Fund portfolio “looks” like:
It is almost as if the manager did his portfolio selection back in Jan 2014 and let his winners ride. An almost static portfolio, much like our Themes.
Contrast that to ICICI Prudential Value Discovery Fund:
This manager is way more active than his IDBI counterpart, going in and out of stocks at a rapid clip. A lot of small positions, except for ICICI bank which is almost 8% of the fund. Given the size of the fund (more than 8,500 crores), the market impact on these trades are likely to be significant.
The UTI MNC Fund takes a different track: a smaller portfolio with concentrated positions and very few high in-and-outs.
There you have it: three different funds and three different approaches to portfolio construction and management, easily told apart through 45-second video clips.
Coming up next
We plan to roll out portfolio videos for the funds that we have recommended our clients and in which we have ourselves invested. If you have any specific funds in mind that you want us to create videos for or looking to invest, give us a call or send us a WhatsApp!
All in all, a good week for the equity markets.
The energy complex found a bid – remains to be seen if it was a dead cat bounce or something more significant.
Credit was mostly tighter – probably a reflection of the worsening finances of fracking cos.
Successful enterprises have a cycle of life. Startups build a product or service, enter the market and attract customers. Once they’re over these initial hurdles, they enter a growth phase, rapidly increasing their revenue and market share with big gains year-over-year. They continue to work on their product, fine-tuning it as revenue starts to flatten and margins stabilize at lower but still attractive levels.
As these companies mature, growth slows even more, eventually flattening out — yet operational expenses continue to climb as they strive to compete with new players in the market. Finally, unable to keep up, burdened with bloated budgets, companies spiral into negative growth, marked by layoffs, high burn rates and eventual bankruptcy or liquidation.
One of the hardest parts about investing is that no matter what it is that you buy there will almost certainly be another investor, asset class, sector, fund or security that will be outperforming you at any given point in time. Behavior is the ultimate equalizer in the markets. Most investors will always prefer to invest based on a narratives over evidence.