Investment advisors caught wrong-footed
While the fund houses' fire-fighting initiative could be lauded as a positive one, there is something amiss. Why weren't such activities undertaken when the markets were soaring to record highs with alarming regularity? Why weren't fund managers addressing distributors and exhorting them to ensure that investors don't get carried away by rising markets? Wasn't there a dire need to ensure that investors stick to their asset allocation and invest in line with their risk appetite irrespective of the rising markets?
Sadly, when the markets were on a northward trajectory, fund houses were busy launching new fund offers (NFOs), most of which were unnecessary (more on that later in the article) and fund managers were impressing upon us the virtues of the "India story" and how rosy the investment scenario was. Educating investors to exercise caution or have rational expectations from the markets rarely featured on fund houses' agenda.
It's rather sad that it takes a downturn in the markets for fund houses to get their act in place. One would certainly expect them to act in a more responsible manner and play a proactive role in safeguarding the investor's interest.
Thanks to a sharp recovery over the last two days of the week, the markets finally snapped their losing streak and closed in positive (albeit marginally) terrain. The BSE Sensex rose by 0.76% to close at 9,885 points, while the S&P CNX Nifty posted a gain of 0.84% to end at 2,890 points. However, investors in the mid cap segment had no reason to cheer as the benchmark CNX Midcap shed 0.78% and closed the week at 3,698 points.
Coming back to the issue of NFOs; at Personalfn, we have consistently maintained that most of the NFOs launched in recent times were of the variety that could add little value or uniqueness to investors' portfolios. Reports suggest that this view was also endorsed by the SEBI (Securities and Exchange Board of India) Chairman, Mr. Damodaran. He reportedly suggested that regulations would be introduced to ensure that NFOs are truly new offerings and not mere refurbishments of existing schemes.
Leading Diversified Equity Funds
| Diversified Equity Funds | NAV (Rs) | 1-Wk | 1-Mth | 1-Yr | 3-Yr | SD | SR |
| UTI INDIA ADV. EQUITY | 6.05 | 2.54% | -22.73% | 8.42% | 34.62% | 6.98% | 0.26% |
| GIC FORTUNE 94 | 25.81 | 1.57% | -19.97% | 27.21% | 45.09% | 6.59% | 0.38% |
| HDFC CAPITAL BUILDER | 48.70 | 1.44% | -26.34% | 28.56% | 57.56% | 7.98% | 0.39% |
| UTI THEMATIC LARGE CAP | 15.28 | 1.39% | -19.11% | 28.95% | - | 6.24% | 0.35% |
| BIRLA FRONTLINE EQUITY | 35.35 | 1.32% | -17.31% | 40.50% | 44.48% | 5.68% | 0.46% |
(The Sharpe Ratio is a measure of the returns offered by the fund vis-à-vis those offered by a risk-free instrument) (Standard deviation highlights the element of risk associated with the fund.)
UTI India Advantage Equity (2.54%) surfaced as the top performer in the diversified equity funds segment. GIC Fortune 94 (1.57%) and HDFC Capital Builder (1.44%) occupied second and third positions respectively.
This week Personalfn's research team profiled the JM Arbitrage Advantage Fund NFO. The fund is the latest addition to the fast growing segment of funds that intend to capitalise on opportunities in the derivatives segment. Contrary to the fund house's claim that the fund is ideal for risk-averse investors, we found it rather difficult to slot the fund for a particular investor category given its investment style and flexibility.
Leading Debt Funds
| Debt Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| LIC BOND | 19.37 | 0.15% | 0.40% | 2.58% | 5.14% | 0.38% | -0.50% |
| PRUICICI LONGTERM | 14.80 | 0.15% | 0.61% | 2.73% | 5.81% | 0.61% | 0.36% |
| BIRLA SUN LIFE INCOME | 24.33 | 0.14% | 0.48% | 2.06% | 4.63% | 0.54% | -0.48% |
| PRUICICI FLEXIBLE INC. | 12.96 | 0.14% | 0.60% | 2.35% | 5.30% | 0.34% | -0.50% |
| ABN AMRO FLEXI DEBT | 10.78 | 0.13% | 0.56% | 2.96% | 5.48% | 0.32% | -0.61% |
The 7.59% 2016 GOI yield closed at 7.79% (June 16, 2006), 1 basis point below the previous weekly close. Bond yields and prices are inversely related with falling yields translating into higher bond prices and net asset value (NAV) for debt fund investors.
LIC Bond (0.15%) and PruICICI Long Term (0.15%) emerged as the top performing debt funds. Birla Sun Life Income (0.14%) also featured among the weekly top performers.
Leading Balanced Funds
| Balanced Funds | NAV (Rs) | 1-Wk | 1-Mth | 1-Yr | 3-Yr | SD | SR |
| BOB BALANCED | 19.47 | 1.14% | -19.61% | 18.94% | - | 6.57% | 0.31% |
| LIC BALANCE | 36.32 | 0.75% | -15.28% | 29.57% | 25.50% | 5.46% | 0.29% |
| HDFC PRUDENCE | 84.97 | 0.53% | -14.10% | 31.20% | 41.88% | 5.08% | 0.47% |
| UTI VARIABLE INVEST ILP | 14.86 | 0.48% | -5.15% | 17.37% | 19.66% | 2.33% | 0.35% |
| PRINCIPAL BALANCED | 18.01 | 0.22% | -19.88% | 22.27% | 35.62% | 5.95% | 0.31% |
BOB Balanced (1.14%) occupied the top position in the balanced funds segment, followed by LIC Balance (0.75%). HDFC Prudence (0.53%) came in at third position.
A positive outcome of the falling markets has been that sector/thematic funds now stand thoroughly exposed. We have always maintained that sector/thematic funds are high risk-high return investment avenues which can clock impressive growths over shorter time frames; however, over longer time periods diversified equity funds stand a better chance of delivering. In the recent past, when markets shot up and fell equally sharply, sector/thematic funds performed exactly in the predicted manner. Funds like Magnum COMMA which successfully rode the bull run, featured among the biggest losers during the downturn.
Unless they understand the intricacies of a sector/theme and can time the entry and exit of their investment, investors would do well to steer clear of sector/thematic funds.
