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Moneylife » Investing » Stock Market » Lagging performance of ING’s “quantitative” portfolio scheme, made worse by astronomical fees and costs

Lagging performance of ING’s “quantitative” portfolio scheme, made worse by astronomical fees and costs

Moneylife Digital Team | 28/09/2010 03:28 PM | 

In another example of aggressive selling in a bull market, ING’s quant scheme, aided by ‘friendly’ media, is gathering lots of assets from the wealthy, no matter its poor performance and high fees

If you go by media reports, ING India BSE200 Quant equity portfolio (IIB200QE Portfolio) a portfolio management scheme (PMS) based on so-called quantitative strategies, is handsomely beating BSE200 every month. The performance is supposed to be so good that the asset base of the PMS has reached around Rs1,000 crore in 15 months. Its aim is to grow assets to Rs1,500 crore by end 2010. With a little more help from interested media, this may indeed be possible - as long as facts can be ignored - and you believe the marketing literature.

ING marketing blitz says that it would record a performance that beats the benchmark consistently. It gives an impression that the scheme has been running for a long time. It provides data up to three years but this is merely how ING would have performed given the method it is using.



(Source: ING India marketing presentation)

The facts are quite different. The scheme was launched in July 2009 and this has been its recent performance.



(Source: ING India disclosure document)

According to the above table the returns of IIB200QE are lower than the benchmark. Secondly, one year return on an index fund is tax free while the same on the PMS would be taxed. But that is not the most pathetic part of the story.

The real killer for investors is ING's upfront entry charge of up to 5%; annual fees of an astronomical 7%; variable management fees linked to portfolio performance; exit fee of 5% on the NAV on early termination; custodian/accounting fees, registrar and transfer agent fees, brokerage and transaction costs and other charges as applicable (bank charges, stamp duty, legal & professional fees and out-of-pocket expenses). After all these costs, there is no hope in hell for investors to be able to beat the benchmark. In fact, every single charge is fixed. So, if the market goes down (a remote possibility for most investors!), all fixed charges would be gouged out of the portfolio. ING India company officials nonchalantly compare the IIB200QE Portfolio marketing presentation returns with BSE200 in media articles to highlight the success of their scheme. In reality the returns dwindle to nothing, if one considers the steep fee structure of ING.

According to ING India officials, "The disclosure document carries the weighted average performance of all clients invested in the product post all expenses such as entry load, exit load, management fee, documentation and activation charges.

These charges are explicitly disclosed in the product application form to the investor. The returns in the marketing materials are that of the model for the reporting period, which is disclosed as well. The disclosure document also takes into account the impact of timing of new and additional flows as well as that of redemptions which is otherwise inherently unique to each client." Internet forums have intermittent comments that seem to be from people with interest to promote the IIB200QE scheme.

Also, PMS based on "quantitative" methods is taking liberty with the term, although this is fairly common in India. Reliance Quant Plus Fund, Motilal Oswal's M50 Exchange Traded Fund and Religare Agile Fund are among the existing quant funds in the mutual fund space. Pramerica Asset Managers and IDFC MF are believed to be launching quant funds soon. These are marketing gimmicks.

The best of quants rely on computers and mathematics to detect patterns, capture the pattern in models/formula and teach computers to spit out buys and sells based on these models. Quants develop a hypothesis defining a relationship among various past data (prices, seasons/months, streaks of winning or losing days etc.), then look at how statistically significant that relationship is. This includes testing the relationship within data in different time periods, market environments, etc., in order to test the robustness theory. Finally, they would take investment/trading positions by presuming that those past relationships would continue to hold in future. It is as close as finance can come to a scientific approach.

In the 1980s, the head of the equity-trading floor in Goldman Sachs, Robert Rubin (later head of Bill Clinton's White House economic team, Secretary of the Treasury, and a senior Citigroup official), hired an academic and a Ph. D.
economist to assist in trading. The academic was Fisher Black, now best known for the Black-Scholes model on opinion pricing that later won the Nobel Prize for Economics for Myron Scholes. None of Indian money managers come even remotely close to this. Calling Indian mutual funds and PMS based on quantitative methods is a joke.

PMS with or without fancy names like 'quant' are being pushed with the help of fat commissions as the market has turned extremely bullish. Since they come late in the rally, fund picking incompetence and high costs would destroy returns - no matter what vested interests in the media say.


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6 Comments
Krupa R

Krupa R 1 year ago

Cannot agree with the article more!!

The portfolio under performed at less than 4% return over 1 year. The fees they charge is so heavy for the service they provide.

Customer support is pathetic and the response is vague.

And I repent for opting for this service from ING. Strongly recommend all investors not to sign up for this service from ING either directly or through ICICI.

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a acharya

a acharya 2 years ago

Agree, this is crap. I had to lose out 10% for over a year of patience. Had I invested in simple FD, I would have made +8% so I am looking at 18% gap! It only served ING to earn from me through fees and the nation through transaction costs...Forget exotic schemes like these...!

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A M

A M 3 years ago

I too invested in the ING 200 scheme around Dec 09, worst returns, waited for a year so that they dont charge me exit load and exited in 13th month. Lucky enought to get principal + some returns due to good market condition of Nifty 6000+ else compared to banchmark - worst ever. Yes what is common is sweet talk. Pune

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Anil Gupta

Anil Gupta 3 years ago

I am sorry I did not seee your analysis before making an investment decision. I also missed it again after I questioned ING on 6 months performance. Now after 16 months return is meagre 5.5%, much less than bank interest or PPF or MIS. Their playing with words making ignorant clients become fools. Their objective is " significantly outperform Nifty/BSE in 1-3 year time frame. Suri and Nishant are nowhere to be found. Nobody replies to investors in 24/48/72 hours promised. And if they do after a week, they say their model was robust, dont know wht went wrong. Keep invested. Why if in 1 year return is (-)10% of nifty, with their 6% fee and quite similar charges for transaction, they cant outperform Nifty in 7 years now. Poor gullible investor, and SEBI with eyes blind like our judicial system

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Durgesh H

Durgesh H 3 years ago

I had invested in this ING Quant PMS after persistent selling by Dhiraj from ING & Cawsi from ICICI Bank. I've finally made any exit after consistently poor performance. ING & ICICI Bank are misguiding people on this PMS which has underperformed since inception. It has not even beaten BSE 200 benchmark in most time phases and there is a huge expense structure. I would suggest investors to stay away from this fund and invest in leading mutual funds.

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