Rising crude prices, record inflation levels and higher interest rates have
sent the stock market careening downwards. After riding the bull run for almost
five years without a serious setback, mutual funds are suddenly finding new
money difficult to come by; this is evident from the poor collections of some
of the recent NFOs. A market downturn can separate the smart funds from the
not-so-smart ones. This is why we decided to look at the performance of funds
over the past one year, to pick out those that are able to negotiate the
downturn better. We have looked at the performance of all equity diversified
growth funds over the past one year but excluded institutional plans and those
which have been launched less than a year ago. This left us with 167 funds for
which we compared performance over a one-year period between 1 June 2007 and
24 June 2008. The results, as usual, have not been very inspiring. Just 28% of
the funds (47 funds) managed to outperform their benchmarks over a one-year
period. The benchmarks for two funds were not available.
In our annual study of the best fund houses this year (MoneyLIFE, 22nd May)
Deutsche Mutual had emerged as the best performing fund house. It fully
justified its emergence at the top. The performance of its DWS Investment
Opportunity Fund over the past one year has been simply outstanding. This Fund
was up 31% handsomely beating its benchmark, the BSE-200 Index, which returned
just 8%. It is a small fund with just about Rs119 crore in assets under
management. Interestingly, it is almost fully invested (95% in equities and the
remaining 5% is in cash) at a time when the market is headed lower by the day.
Among its top equity picks are Reliance Industries, Infosys Technologies, Tata
Steel, Cairn India and Bharti Airtel; while it recently added GE Shipping and
Idea Cellular to its portfolio.
The next best performance over the past one year came from IDFC Premier Equity
Fund (bought over from Standard Chartered) which was up 26% between June 2007
and June 2008. This Fund too is benchmarked against the BSE-200 Index which was
up 8%. With Rs785.32 crore in assets under management, this Fund is 73%
invested in equities, 10% in debt, 11% in cash and the remaining 6% in money
market instruments and other current assets. Among its top equity picks are
Educomp Solutions, Axis Bank, Shriram Transport Finance, SREI International
Finance and Suzlon Energy while it recently entered Gokul Refoils & Solvents.
Though these are among its top equity picks, its largest exposure, accounting
for almost 6% of its net assets, is classified as other equities the break-up
of which is not available.
A winners’ list without a fund from Reliance Mutual looks incomplete.
Reliance RSF Equity Fund returned 25% over a one-year period, outperforming its
benchmark, the BSE-100 Index, which was up 9%. It manages Rs709 crore in assets
of which 81% is invested in
equities while the remaining 19% is held in cash -- a strategy which is paying
off well in a severe market downturn. Among its top equity picks are Pratibha
Industries, Reliance Industries, Divi’s Laboratories and Maruti Udyog.
Even in the case of this Fund, other equities form 4.6%, a sizeable chunk.
Among its more recent picks are IndiaInfoline, Biocon, Reliance Infrastructure,
Wipro, Shiv-Vani Oils and Titan Industries.
With a one-year return of 23%, the BOB Growth Fund came next among top
performers among equity diversified growth funds. The Fund is benchmarked
against the Sensex which was up just 6% between June 2007 and June 2008. This,
however, is a very small fund with just Rs7.27 crore in assets under
management. The Fund turned lucky buying Reliance Industries, Reliance
Communications, L&T, Ranbaxy and Hindustan Unilever and has recently added
Maruti Udyog, MIC Electronics and Mercator Lines to its portfolio.
The last among the top five performers was SBIMF’s Magnum COMMA Fund. The
Fund was up 22% over the past one year beating its benchmark, the BSE-200
Index, which returned 8%. This Fund manages over Rs637 crore in assets with 79%
invested in equities, 1% in deposits and 21% in current assets (the break-up of
which is not available). With so much money kept in cash, the Fund is well
placed to take advantage of the market fall. Among its top equity picks are
Tata Steel, Reliance Industries, SAIL, United Phosphorous and Jaiprakash
Of the above-mentioned five, we recommend Reliance RSF and SBI’s Magnum
COMMA Fund as the best picks.
The worst among the lot in terms of performance was Kotak’s Lifestyle
Fund which was down 18% between June 2007 and June 2008. Benchmarked against
the CNX 500, the Fund’s returns were way below the 4% returned by its
benchmark. Out of the Rs172.19 crore that the Fund manages, 91% is invested in
equities, 2% in debt and the remaining 7% in other current assets. Among its
top equity picks are Bharti Airtel, HDFC, ITC, United Spirits and Zee
Entertainment while it recently entered Dabur. Clearly, the Fund failed to
capitalise on other ‘lifestyle’ stocks such as Evinix or Godfrey Philips
which have done better than the stocks it chose. The next among weak performers
was ABN AMRO’s Future Leaders Fund. It was down 17% between June 2007 and
June 2008 failing to outperform its benchmark, the CNX Midcap, which was up 9%.
A relatively small fund with just Rs61.02 crore in assets, it has 97% of its
assets invested in equities across stocks like Texmaco, Ashok Leyland, Exide,
Northgate Technologies and Lupin. The new additions include Mercator Lines and
Birla Sun Life’s India Opportunities Fund with -16% return ranked among
the worst five performers underperforming its benchmark, the CNX 500, which was
up 4%. This Fund too is comparatively small in size with just Rs63.26 crore in
assets. About 88% of its assets are invested in equities while it holds the
remaining 12% in cash. Among its top equity picks are Satyam, Reliance
Industries, Raymond, United Breweries and Honeywell Automation. It also has
some exposure to software stocks like HCL Technologies, TCS and Infosys
(recently added) and has yet failed to perform well. The timing must have been
horrible. Among its new picks is Bharti Airtel.
We have always advised you to stay away from contra funds. We are not surprised
that DBS Chola Contra Fund declined 13% over the past one year finding a place
among the worst performers. This Fund too is benchmarked against the CNX 500
which was up 4%. This Fund is by far the smallest among the ones we have
analysed, with just Rs21.4 crore in assets under management, of which 84% is
invested in equities while the remaining 16% is in current assets. Almost
one-fourth of its portfolio consists of stocks that it has bought recently;
Jaiprakash Hydro, Reliance Industries, ICICI Bank, Kotak Mahindra Bank and
Reliance Communications are among its top picks. Buying banking stocks probably
just before they nosedived has hurt its performance.
The last among the worst five performers was Franklin India Smaller Companies
Fund which was down 12% between June 2007 and June 2008. This Fund too is
benchmarked against the CNX 500 which was up 4% over the same period. It has
Rs820 crore in assets under management with 95% invested in equities and the
remaining 5% in current assets. Its top picks include Exide Industries, Simplex
Infrastructure, Trent, Bharti Airtel and Mercator Lines, the last two being the
latest additions to its portfolio. In addition to these, it has recently
entered Infosys, Marico, Reliance Petroleum and Mindtree Consulting. We are
neither surprised with the poor performance of this Fund nor its attempt to
pass off Infosys and Reliance Petroleum as ‘smaller companies’. Fund
companies frequently launch schemes to take your money at an opportune time and
earn a steady fee for themselves. They are not meant to earn superior returns
for you. Both, ABN AMRO’s Future Leaders Fund and Franklin India’s
Smaller Companies Fund, were launched when mid-cap and smaller companies were