Sector Funds: Many schemes from dud sectors

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.

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COMMENTS

Dr anil k kothari

4 years ago

IT appears that mutual funds have purly become gimmick fund. I just give you example. Any theme which was marketed with eg of high returns have failed to deliver. In 2000 it was IT sector which was promoted than came index funds than infra, than financial, Energy, PSU and lastly gold and debt. i think whenever all fund houses starts pushing a theme bettter not to iinvest or exit quickly because only early entrants gains

sivasankaran

4 years ago

SIR,
YOY HAVE DONE A GOOD JOB BY HIGHLIGHTING THE PIT FALLS OF SECTOR FUNDS.THEN WHY THE SEBI CANNOT RESTRAIN THE AMCs FROM THE LAUNCHING OF SUCH FUNDS PUTTING THE INVESTORS AT HIGH RISK?

Ramesh Poapt

4 years ago

Reliance Infra has proposed merger with other equity scheme in Sept.13.
In financial sector exposures reputed fund managers love SBI since long, though the writing on wall was its bad performances qtr by qtr. .very very surprising, if not shocking!

NSEL announces settlement plan, to keep e-series suspended
As per the settlement plan, pay-in would commence from 16th August while pay-out will start from 20th August. Trading in NSEL e-series would remain suspended
 
National Spot Exchange Ltd (NSEL) on Wednesday announced its payment settlement plan. As per the plan, pay-in would commence from 16th August while pay-out will start from 20th August. 
 
In a release, NSEL said it is solely and directly responsible for all its operations. Regarding the e-series contracts, the Exchange said trading would remain suspended until further directions from the government and regulator Forward Markets Commission (FMC).
 
The exchange owes its investors at least Rs5,600 crore against investments made in stocks warehoused by NSEL. As a precautionary measure, the government of India had directed NSEL on 6th August to suspend the e-series contracts from trading.
 
Meanwhile, prime minister Manmohan Singh has set up a special team headed by economic affairs secretary to look into NSEL issue.
 

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COMMENTS

Reeta

4 years ago

Even today as per the Settlement plan from NSEL the Broking fraternity is not trying the safeguard the interest of the small investors. I am a woman retired widow senior citizen who had invested almost 80% of my life savings worth 8 lacs in this exchange. I am on medication now suffering from a nervous breakdown.
In case of a bank default all depositors are given 1 lac each by RBI not on pro-rata basis. It is a similar situation now at NSEL. Why cant the FMC distribute in a similar way ? Or at least give 10% per week to investors below 10 lacs & 2.5% to HNI investors. This would give a large number of small investors who have put their life savings in this exchange some relief.

Vinayak Bhimarao Mudholkar

4 years ago

Management by objectives is the mantra (preached in business schools)of "modern" businesses but it ought to be "Sadhan Shuchita"!

R Balakrishnan

4 years ago

Clever use of words 'NSEL is solely" responsible.... A clear attempt to try and protect Financial Tech.
If Jignesh Shah is so committed, let him first put in the money from FT (or what it claims it has on the balance sheet) and then take it back when money comes back to NSEL. Clearly, something is seriously amiss and no one is seriously pursuing all options

REPLY

Reeta

In Reply to R Balakrishnan 4 years ago

Absolutely... How can he freely own and run a public listed company when he has defaulted as a scamster in dwindling commodities in another exchange. FT should be made responsible as a promoter company.

Sensex, Nifty may struggle to head higher: Wednesday closing report
For the Nifty to keep rallying, it has to make a new high and hold itself above 5,672
 
Today the Sensex and the Nifty closed in the positive for the fourth consecutive trading day. Sensex opened at 19,299 and soon hit a higher low of 19,204. After which it witnessed a lot of volatility, but near the end of the session, it shot up to an intra-day high of 19,393 and closed at 19,368 (up 138 points or 0.72%). Nifty opened at 5,715 and reached 5,755 after hitting a low of 5,690 and closed at 5,742 (up 43 points or 0.75%). The National Stock Exchange (NSE) recorded a volume of 67.34 crore shares.
 
All the major indices on the NSE closed in the positive. Lix 15 was the top gainer, up 2.36%. Among the other indices, Auto (rose 3.17%); Realty (rose 2.89%); Metal (rose 2.70%); PSE (rose 2.53%) and Media (rose 2.50%) were the top five gainers. The three indices which fell were MNC (fell 0.28%); IT (fell 0.25%) and Pharma (fell 0.24%). 
 
Of the 50 stocks on the Nifty, 30 ended in the in the green. The major gainers were Tata Motors (up 9.82%), Hindalco (up 7.22%), BPCL (up 6.50%), NMDC (up 5.83%) and DLF (up 5.65%). The main losers were HCL Technologies (down 2.19%); Ranbaxy (down 1.82%); BHEL (down 1.74%); Dr Reddy (down 1.35%) and Reliance Infrastructure (down 1.27%).
 
The stock market remains closed tomorrow, 15 August 2013, on account of Independence Day.
 
Inflation based on the wholesale price index (WPI) inflation accelerated to 5.79% in July 2013, from 4.86% in June 2013, according to the data released by the government. Fuel and power groups mainly contributed to the increase in inflation in July 2013. Meanwhile, the government revised downwards inflation for May 2013 to 4.58% from the 4.7% reported earlier. 
 
The WPI inflation has moved past the central bank's comfort zone. The Reserve Bank of India has said it can tolerate inflation up to 5%, but that a faster pace of price increase hurts the economy's long-term growth prospects. 
 
Data released on Monday showed that the annual consumer price inflation slowed in July but remained elevated at 9.64%, from 9.87% the previous month.
 
India will consider a request from oil marketing companies to be allowed to raise diesel prices by more than the approved Rs0.50 a month, oil minister, M Veerappa Moily, told a television channel.
 
US indices rose on Tuesday. A report released by the Commerce Department showed retail sales rose 0.2% in July after a 0.6% gain in June that was larger than initially estimated. Retail sales excluding cars, gasoline and building materials climbed at their fastest pace in seven months.
 
On the other hand, talk about the Fed's next step escalated on Tuesday when Atlanta Fed President Dennis Lockhart said it was too early to detail plans for a tapering, but did not rule out the possibility of it starting next month. However, he suggested it to be a cautious first step. This pushed the US market up yesterday.
 
Asian indices had a mixed performance. Nikkei 225 being the top gainer, 1.32% while Taiwan Weighted fell the most, 0.44%. Hong Kong stock and derivatives trade was canceled on Wednesday due to storm.
 
European indices were trading mostly in the green while the US Futures were trading in the red.
 
In Europe, the latest data showed that Germany's gross domestic product swelled 0.7% in the second quarter from the preceding period. Germany's statistics office said growth in the second quarter was driven by domestic demand, as both private consumption and public spending increased from the first quarter.
 
The minutes of the Bank of England's (BoE) most recent Monetary Policy Committee (MPC) meeting showed that eight of the nine MPC members voted in favor of providing forward guidance on policy last month, and the vote to keep the quantitative-easing policy unchanged was unanimous. The central bank said it would keep interest rates at historical lows until unemployment falls.
 
McNally Bharat Engineering Company has bagged a contract worth Rs 216 crore for engineering, design and commissioning of an ash handling system and water circulation package. The stock fell 0.33% to close at Rs45.80 on the NSE.
 

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