Fund houses have covered nearly every sector and every theme. Strangely, funds covering the top-performing sectors are few. Jason Monteiro shows how funds have missed the best of themes and followed the fashion-of-the-day
A mutual fund scheme has been launched for almost every sector, banking, fast-moving consumer goods, infrastructure, media, MNCs etc. If you wish to invest in public sector companies, there are PSU funds. But many of the sectors have been fads for a particular period and fund houses have just rushed in to launch such schemes. Several of these schemes have performed poorly. In terms of returns, banking, FMCG, MNC and pharmaceutical sector fund schemes have led the list with double digit returns over the five-year period. The schemes from other sectors have been average to poor. Before the financial crisis, fund houses had rushed in to launch infrastructure and power sector fund schemes, which were fad themes at the time. Out of the 25 schemes that belong to the infrastructure and power sectors, as many as 19 schemes are from infrastructure sector. Surprisingly, very few fund houses have launched schemes for defensive sectors like FMCG and pharma. There are just two FMCG sector schemes and three pharma sector schemes. And these have been the best-performing sectors.
Therefore, fund houses have launched such schemes merely as an asset gathering exercise. Only when a particular sector was ‘hot’ or showing a rising trend, fund houses begin to launch schemes. Not only sector schemes, but we have seen other schemes such as MIPs or hybrid schemes investing in gold being launched one after the other to lure investors.
At present there are just two FMCG schemes, SBI FMCG Fund and ICICI Prudential FMCG. SBI FMCG Fund has done better with an average return of 30.96%. The scheme from ICICI Prudential Mutual Fund delivered a lower average return at 23.75%. The S&P BSE FMCG index delivered a return of 25.98%.
All three of the pharma sector schemes have a track record of over five years. Apart from Reliance Pharma Fund which has a corpus of over Rs600 crore the other two schemes— SBI Pharma Fund and UTI Pharma and Healthcare Fund have a corpus of little above Rs100 crore. In terms of average returns, the SBI Pharma Fund has been the best among the other two schemes with a return of 17.02% marginally beating the S&P BSE Healthcare index which delivered 16.86%. The scheme from Reliance MF and UTI MF delivered a return of 24.74% and 17.82% respectively.
A few infrastructure schemes may have done better than their benchmark. However, on deeper analysis, we found that many of these schemes invest a significant portion in sectors apart from construction and related sectors. Out of the 19 infrastructure sector schemes, there are seven schemes that have their highest allocation to banks. Schemes like Birla Sun Life Infrastructure Fund, HDFC Infrastructure Fund and ICICI Prudential Infrastructure Fund have an allocation of over 20% to the financial sector. These schemes have delivered an average return of -0.90% over a five year period while the CNX Infrastructure index delivered a return of -9.86% over the same period.
Infrastructure schemes have been one of the worst-performing sector schemes of the past. There are as many as 19 infrastructure schemes which have delivered an average annualised return of -6.24% while the CNX infrastructure index has delivered an average of -8.67%. Two schemes of the 19 which have been able to consistently beat the benchmark are Religare Invesco Infrastructure Fund and ICICI Prudential Infrastructure Fund. Schemes such as Reliance Infrastructure Fund and Escorts Infrastructure Fund have delivered a negative return of -26.59% and -25.39% respectively.
Sector Funds are not for the average investor. Investing in a sector fund is riskier than normal. If you do not get your timing right, you may face a significant loss of capital. Even fund managers find it difficult to beat the benchmark of their particular sector. And of course, as you can they get their sector selection itself wrong – chasing the wrong sector at the wrong time.