When Dynamic Is Balanced!

Balanced funds are in vogue - under a different garb

Balanced funds have not lived up to their name because most of them follow a disbalanced strategy of investing. Is that why fund companies want to bring them back under a different name? What else explains the strategy of two balanced funds coming to the market but neither of them sporting the name balanced? They now call themselves...

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When SIPing Is Bad For Your Wealth

Be careful about having blind faith in Systematic Investment Plan

Tata Mutual Fund is launching a scheme based on the idea of Systematic Investment Plan called Tata SIP equity fund. SIPs, as any investor knows, are one of the better ways to create a winning portfolio. The idea is simple. Instead of putting large lumps of your money into the market, invest that money in drips. The advantage...

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Another Contra Fund!

Undeterred by the poor performance of contra funds, a new contra fund is coming to raise money. As we had pointed out two issues ago, five fund houses currently offer schemes with a so-called contrarian investment objective. Of these, four have consistently underperformed their benchmarks. Will Lotus Contra, a new fund scheme, be any different?

One thing going for it is the fund manager, Sandip Sabharwal. Of the five contra funds, the only one which has delivered decent performance is SBI MF’s Magnum Sector Umbrella. On a one-year basis its returns at 44% were much better than the 41% of BSE 100 against which it is benchmarked. Sabharwal was the fund manager of Magnum Contra. A good manager can surely make a big difference to fund performance and Sabharwal’s track record should inspire interest. But is that enough? Sabharwal’s picks of Mahindra and Mahindra at Rs 100 and Telco at Rs 76 in 2002 were as much a successful market bet as stock bet. After all, the entire Indian market has gone up manifold since 2003.

Most interestingly, the fund claims that “in the present market, 80% of the investment portfolios look alike which result in reducing the potential of generating above market returns. This will be possible only through a first mover advantage.” This is certainly true. We ourselves have been pointing out how the fund portfolios look so much alike. How will Lotus have its “first-mover advantage?” The prospectus says that its contra fund scheme would buy stocks of companies that are undervalued, are turning around or are in a business cycle that is bottoming out. It will be lucky to find many stocks of these kinds - at valuations that are reasonable. Intriguingly, the scheme will take “short positions on specific stocks and index futures either for hedging or when the fund manager has a negative view on the markets.” While short-selling is a legitimate contrarian strategy, it is very risky because of the huge leverage that comes with using futures. There is simply no evidence of successful short-selling by any Indian institutional investor.

The contra fund scheme is the first fund of a new fund company, Lotus Asset Management. Is the move to launch a risky scheme from an underperforming segment simply courageous? Or, does it again underline the fact that funds can be sold to retail investors by means other than performance?

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