Searching for patterns where none exists
Monthly returns are all over the map.
Equities
| MINTs | |
|---|---|
| JCI(IDN) | +3.04% |
| INMEX(MEX) | +8.10% |
| NGSEINDX(NGA) | +1.83% |
| XU030(TUR) | -6.16% |
| BRICS | |
|---|---|
| IBOV(BRA) | +10.38% |
| SHCOMP(CHN) | +3.11% |
| NIFTY(IND) | +0.41% |
| INDEXCF(RUS) | +6.75% |
| TOP40(ZAF) | +4.55% |
Commodities
| Energy | |
|---|---|
| Heating Oil | +15.87% |
| Ethanol | +4.71% |
| Natural Gas | +1.65% |
| WTI Crude Oil | +4.03% |
| Brent Crude Oil | +19.84% |
| RBOB Gasoline | +38.27% |
| Metals | |
|---|---|
| Silver 5000oz | -4.07% |
| Palladium | +6.05% |
| Copper | +7.54% |
| Gold 100oz | -4.89% |
| Platinum | -3.99% |
Currencies
| MINTs | |
|---|---|
| USDIDR(IDN) | +2.06% |
| USDMXN(MEX) | -0.30% |
| USDNGN(NGA) | +7.50% |
| USDTRY(TUR) | +2.56% |
| BRICS | |
|---|---|
| USDBRL(BRA) | +5.81% |
| USDCNY(CHN) | +0.30% |
| USDINR(IND) | -0.05% |
| USDRUB(RUS) | -11.87% |
| USDZAR(ZAF) | -0.01% |
| Agricultural | |
|---|---|
| Coffee (Arabica) | -15.10% |
| Orange Juice | -13.76% |
| White Sugar | -3.00% |
| Cocoa | +6.99% |
| Lean Hogs | +0.07% |
| Wheat | +2.68% |
| Coffee (Robusta) | -2.39% |
| Corn | +3.30% |
| Feeder Cattle | -4.76% |
| Lumber | -7.83% |
| Cattle | -1.67% |
| Cotton | +7.53% |
| Soybean Meal | +6.62% |
| Soybeans | +7.05% |
| Sugar #11 | -6.49% |
Credit Indices
| Index | Change |
|---|---|
| Markit CDX EM | +0.80% |
| Markit CDX NA IG | -6.65% |
| Markit iTraxx Asia ex-Japan IG | -12.04% |
| Markit iTraxx Australia | -12.42% |
| Markit iTraxx Europe | -8.36% |
| Markit iTraxx Europe Crossover | -53.54% |
| Markit iTraxx Japan | -4.43% |
| Markit iTraxx SovX Western Europe | -1.77% |
| Markit LCDX (Loan CDS) | +0.03% |
| Markit MCDX (Municipal CDS) | -1.59% |
Most world markets ended in the green. The energy complex clocked in some impressive gains as well…
Nifty Heatmap
Index Returns
Sector Performance
Advance Decline
Market Cap Decile Performance
| Decile | Mkt. Cap. | Adv/Decl |
|---|---|---|
| 1 (micro) | -0.87% | 66/66 |
| 2 | -3.59% | 63/68 |
| 3 | +3.03% | 62/70 |
| 4 | -1.24% | 54/77 |
| 5 | +1.86% | 67/65 |
| 6 | +1.88% | 68/64 |
| 7 | -0.26% | 59/72 |
| 8 | +3.20% | 74/58 |
| 9 | +1.42% | 67/65 |
| 10 (mega) | -0.02% | 66/66 |
Mid-caps caught a bid but large-caps were mostly in the red…
Top Winners and Losers
| BHARATFORG | +21.26% |
| JINDALSTEL | +23.38% |
| SIEMENS | +28.31% |
| UNIONBANK | -18.00% |
| RCOM | -13.94% |
| AUROPHARMA | -13.17% |
Make defense stuff in India…
ETF Performance
| JUNIORBEES | +0.31% |
| NIFTYBEES | -0.04% |
| CPSEETF | -0.36% |
| BANKBEES | -1.65% |
| INFRABEES | -1.76% |
| GOLDBEES | -5.38% |
| PSUBNKBEES | -6.40% |
Not takers for PSU banks and their bag of worries…
Yield Curve
Bond Indices
| Sub Index | Change in YTM | Total Return(%) |
|---|---|---|
| GSEC TB | +0.19 | +0.55% |
| GSEC SUB 1-3 | +0.34 | +0.01% |
| GSEC SUB 3-8 | +0.08 | +0.09% |
| GSEC SUB 8 | -0.04 | +0.07% |
A flat yield curve means you only get to clip the coupon…
Interbank lending rates
Investment Theme Performance
| Momentum 200 | +6.53% |
| IT 3rd Benchers | +5.60% |
| Market Elephants | +5.50% |
| Financial Strength Value | +4.57% |
| The Other Value | +1.90% |
| Growth with Moat | +1.58% |
| Balance-sheet Strength | +1.33% |
| Enterprise Yield | +1.04% |
| Efficient Growth | +0.58% |
| CNX 100 50-Day Tactical | +0.13% |
| Auto | -0.90% |
| Refract: PPFAS Long Term Value Fund | -0.93% |
| Quality to Price | -1.12% |
| Market Fliers | -2.49% |
| Magic Formula Investing | -3.52% |
| Old Economy Value | -3.54% |
| Piotroski ROC Small Caps | -4.69% |
| ADAG Mania | -6.92% |
Momentum beat most of the value strategies out…
Equity Mutual Funds
Bond Mutual Funds
Thoughts to sum up the month
A business with terrific economics can be a bad investment if it is bought for too high a price. In other words, a sound investment can morph into a rash speculation if it is bought at an elevated price.
Equities
| MINTs | |
|---|---|
| JCI(IDN) | +0.93% |
| INMEX(MEX) | +1.75% |
| NGSEINDX(NGA) | +2.45% |
| XU030(TUR) | -1.91% |
| BRICS | |
|---|---|
| IBOV(BRA) | +0.82% |
| SHCOMP(CHN) | +1.95% |
| NIFTY(IND) | +0.12% |
| INDEXCF(RUS) | -1.88% |
| TOP40(ZAF) | +0.60% |
Commodities
| Energy | |
|---|---|
| Brent Crude Oil | +3.85% |
| Ethanol | +0.42% |
| Natural Gas | -8.20% |
| WTI Crude Oil | -2.02% |
| Heating Oil | -6.88% |
| RBOB Gasoline | +20.39% |
| Metals | |
|---|---|
| Copper | +3.44% |
| Gold 100oz | +0.61% |
| Palladium | +5.14% |
| Platinum | +1.58% |
| Silver 5000oz | +0.61% |
Currencies
| MINTs | |
|---|---|
| USDIDR(IDN) | +0.84% |
| USDMXN(MEX) | -0.62% |
| USDNGN(NGA) | +1.64% |
| USDTRY(TUR) | +2.36% |
| BRICS | |
|---|---|
| USDBRL(BRA) | -1.14% |
| USDCNY(CHN) | +0.21% |
| USDINR(IND) | -0.61% |
| USDRUB(RUS) | -0.34% |
| USDZAR(ZAF) | +0.24% |
| Agricultural | |
|---|---|
| Coffee (Robusta) | -3.55% |
| Cotton | -0.71% |
| Lean Hogs | +1.80% |
| Soybean Meal | +1.03% |
| Wheat | +0.49% |
| Cocoa | -0.05% |
| Corn | -0.26% |
| Feeder Cattle | +1.00% |
| Sugar #11 | -4.02% |
| Cattle | -3.31% |
| Lumber | -2.08% |
| Orange Juice | -7.56% |
| Soybeans | +2.85% |
| Coffee (Arabica) | -7.38% |
| White Sugar | -2.34% |
Credit Indices
| Index | Change |
|---|---|
| Markit CDX EM | -0.18% |
| Markit CDX NA IG | -2.78% |
| Markit iTraxx Asia ex-Japan IG | -4.75% |
| Markit iTraxx Australia | -4.66% |
| Markit iTraxx Europe | -4.75% |
| Markit iTraxx Europe Crossover | -29.42% |
| Markit iTraxx Japan | -0.03% |
| Markit iTraxx SovX Western Europe | -3.07% |
| Markit LCDX (Loan CDS) | +0.05% |
| Markit MCDX (Municipal CDS) | -1.28% |
After all the hype and hoopla, it turned to be a meh budget.
Nifty Heatmap
Index Returns
Sector Performance
Advance Decline
Market Cap Decile Performance
| Decile | Mkt. Cap. | Adv/Decl |
|---|---|---|
| 1 (micro) | -0.84% | 68/67 |
| 2 | -0.57% | 71/63 |
| 3 | -0.50% | 66/69 |
| 4 | -1.52% | 57/78 |
| 5 | -0.36% | 70/65 |
| 6 | -0.16% | 65/70 |
| 7 | -0.65% | 64/71 |
| 8 | -0.47% | 68/67 |
| 9 | +0.21% | 62/73 |
| 10 (mega) | -0.50% | 66/69 |
Mal all around…
Top Winners and Losers
Investors are still trying to figure out what Make in India is all about.
Meanwhile, converging FPI & FDI might allow Axis Bank to be included back again into the MSCI India index.
Meanwhile, converging FPI & FDI might allow Axis Bank to be included back again into the MSCI India index.
ETF Performance
| BANKBEES | +2.94% |
| NIFTYBEES | +0.66% |
| CPSEETF | +0.44% |
| JUNIORBEES | +0.36% |
| INFRABEES | -1.08% |
| GOLDBEES | -1.28% |
| PSUBNKBEES | -2.43% |
We still don’t know how PSU banks are going to fund themselves…
Yield Curve
Bond Indices
| Sub Index | Change in YTM | Total Return(%) |
|---|---|---|
| GSEC TB | +0.14 | +0.11% |
| GSEC SUB 1-3 | +0.26 | -0.12% |
| GSEC SUB 3-8 | +0.17 | -0.41% |
| GSEC SUB 8 | +0.06 | -0.21% |
A flat yield curve, going nowhere in a hurry…
Investment Theme Performance
| Market Fliers | +1.19% |
| CNX 100 50-Day Tactical | +0.51% |
| Balance-sheet Strength | +0.46% |
| Refract: PPFAS Long Term Value Fund | +0.42% |
| Magic Formula Investing | +0.37% |
| Financial Strength Value | +0.29% |
| Enterprise Yield | +0.27% |
| IT 3rd Benchers | -0.01% |
| Momentum 200 | -0.07% |
| Market Elephants | -0.40% |
| Growth with Moat | -0.45% |
| ADAG Mania | -0.56% |
| Efficient Growth | -1.36% |
| Old Economy Value | -1.38% |
| The Other Value | -1.53% |
| Piotroski ROC Small Caps | -1.61% |
| Auto | -2.30% |
| Quality to Price | -2.54% |
Was a not a good week for midcap value…
Equity Mutual Funds
Bond Mutual Funds
Thought for the weekend
We live in a world awash with information, but we seem to face a growing scarcity of wisdom. And what’s worse, we confuse the two. We believe that having access to more information produces more knowledge, which results in more wisdom. But, if anything, the opposite is true — more and more information without the proper context and interpretation only muddles our understanding of the world rather than enriching it.
Nifty one year daily return correlations
Nifty one month daily return correlations
Bank Nifty one year daily return correlations
Bank Nifty one month daily return correlations
Midcap one year daily return correlations
Midcap one month daily return correlations
A lot of thick blue squares mean that positive correlations are high. Red squares mean negative correlations are high. Whites are the doldrums.
Diversification vs. Returns vs. Currency hedging
Some Indian funds, under the guise of diversification, invest in foreign equities. However, the benefit of diversification comes from investing across asset classes. Does investing in the same asset class, i.e., equities, really give the investor uncorrelated returns? Or are funds using international equities as a rupee-short in disguise?
World Equity Correlation
When you run correlations between the monthly returns of the S&P 500, Nasdaq, FTSE 100, Nikkei and CNX 500, here’s what you get:
| S&P 500 | Nasdaq | FTSE 100 | Nikkei 225 | CNX 500 | |
|---|---|---|---|---|---|
| S&P 500 | 1.0000000 | 0.8387130 | 0.8537901 | 0.6144493 | 0.5226191 |
| Nasdaq | 0.8387130 | 1.0000000 | 0.6913427 | 0.5909979 | 0.5499836 |
| FTSE 100 | 0.8537901 | 0.6913427 | 1.0000000 | 0.5717508 | 0.5216565 |
| Nikkei 225 | 0.6144493 | 0.5909979 | 0.5717508 | 1.0000000 | 0.5633231 |
| CNX 500 | 0.5226191 | 0.5499836 | 0.5216565 | 0.5633231 | 1.0000000 |
A zero or negative correlation would validate the diversification claim. But that is not the case. Indian equities are loosely correlated with international stock markets.
World equity Returns
When it comes to returns, Indian equities have outperformed all the main indices.
Currency hedge
The 50% depreciation in the rupee since 2000, however, make a strong case for adding short-INR/long-USD assets.
Competency
Although Rupee depreciation makes a case for holding dollar assets, why do it in a convoluted way by buying individual stocks? The competency of an Indian asset manager in picking stocks in a foreign market is questionable.
For example, the PPFAS fund holds about 20% of its assets in foreign equities. This, at a time when most developed markets have given up on stock-picking and have turned to indexing instead. Can a manager, sitting in India, select stocks in a foreign market that outperform that market?
The problem with a mixed-in portfolio like PPFAS is that it is very difficult to break performance down to its components. Between 2014-01-01 and 2015-02-25, PPFAS Long Term Value Fund has returned a cumulative 44.20% with an IRR of 37.45% vs. BSE MID CAP’s cumulative return of 58.84% and an IRR of 49.50%. (http://svz.bz/1DZzX1L)
Conclusion
Exposure to US Dollar assets makes sense given the historical depreciation of the Indian rupee against the US dollar. However, we are not convinced that buying a fund that tries to pick stocks in foreign markets is the way to go. Investors would be better of being net short the rupee, or buying the S&P 500 ETF separately.