2 of 3 funds deliver below 1% returns over 12 mths
Of the 170 equity schemes that have been in existence for more than a year, only 18 schemes delivered returns of more than 10 per cent.business Updated: Jun 23, 2008 20:38 IST
Experts are expected to outperform the market — in fact, they are paid to do so. But in a market that has turned and the benchmark equity returns represented by the change in the value of Sensex are down, a majority of fund managers have underperformed.
Of the 170 equity schemes that have been in existence for more than a year, only 18 schemes (around 10 per cent) delivered returns of more than 10 per cent. Only a third of the schemes have outperformed Sensex which itself has grown by a mere 1.1 per cent over the past one year.
In other words, two out of every three diversified equity schemes have generated less than 1 per cent over the past one year. Which means, investors in exchange traded funds (ETFs) — closed end mutual funds that invest in the same companies in the same proportion as the underlying index — with far lower costs were better off, as ‘expert fund managers’ failed to deliver.
“From an investor’s point of view, the fund managers have performed miserably over the past one year,” said Nilesh Shah, deputy managing director, ICICI Prudential AMC.
What went wrong? “There are couple of things that happened,” Shah said. “Fund managers went wrong on valuation. Many entered overvalued real estate stocks. Event risk then took everyone by surprise — the oil shock, inflation, adverse currency movement and farm loan waiver were not expected.”
But why could they not stay above the Sensex in terms of performance? “The Sensex rally till December 2007 had been concentrated,” said Sanjay Sinha, chief investment officer, SBI Funds Management. “Ten stocks contributed to more than 90 per cent of Sensex gain. So if the fund manager is not replicating index, he will lag the index.”
Whatever the case, it is retail investors that are left holding on to an investment position that they started out with a year ago, with negative real rates of return (when adjusted for inflation that has jumped to double digits now).
While keeping the faith in equities is getting difficult for retail investors, fund managers are introspecting. “Fund managers will have to practice stringent risk management, which has the ability to manage the downside though it might see some moderation in the upside return,” said Shah.
As fund managers manage their risk-return equations, investors need to check their portfolio and see how their fund managers are performing. “Investors should closely go through the portfolio and performance of their individual schemes invested,” said Surya Bhatia, a Delhi-based financial planner. “If the scheme has been an average performer in the past and has generated negative return in the past one year, they need to revisit their investment.”