An email exchange inside FundsIndia

A few minutes back, there was an email exchange between one of our advisors and our head of research, Vidya. It kind of illustrates the kind of dialogues we have internally and throws light on our research and advisory philosophy. I thought I would share the exchange with our blog readers. Please see below and you can judge for yourself.

One of our advisors, Krish Anand sent an email to Vidya with a question:

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Hello Madam,

Please see this article by a young person, Pratik Vasa who says that more money is made from sector funds. He says that the rally upto Sensex 21K from around 18K levels has not been broad based and we need to look at specific sectors to get good returns. It is a question of risk vs rewards ratio.

http://wealthforumezine.net/Advisorspeak261013.html#.UnHnLJSztZg

Kindly request to consider sector funds in FundsIndia. Investor has to be advised on the risk factors.

Warm regards,

K. Anand
Advisory Department

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Vidya’s response to Anand’s mail was as below.

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Hello Anand,

Good article. But I think it does not talk about sector funds. It talks about looking beyond the Sensex, into specific sectors and stock-specific opportunities (we discussed yesterday with an example as to how stock-specific opportunities arise even in a bear market). He has discussed how some sectors played out well even as the Sensex went nowhere. That is precisely what active fund managers do in a diversified fund. They take a bottom up approach for a good part and increase or decrease sector holding (as we saw with FMCG, banking IT etc) based on the sector’s fortunes.

Sector funds choices need more than a ‘past track record’ to catch the right sectors and also exit them right as there are no perennial bull runs in sector funds.
The risk of not catching them is very high. I would also urge you to read our article https://www.fundsindia.com/blog/mutual-funds/should-you-have-sector-funds-in-your-portfolio/2301 and see the data between 2003-07 and how the currently hot sector funds did then when compared with diversified funds.

We can only offer long-term wealth building portfolios and not calls for ‘tactical allocations’. We are not running an PMS. Besides, choosing sectors is the job of the fund manager not an advisor. Recommending sector funds involves understanding the fortunes of each sector and its prospects in-depth. That is something a fund manager should be doing.

I believe the primary first objective for FundsIndia advisory should be ‘to mitigate risks as much as possible and then comes building wealth efficiently’. In this regard, I shall be constrained from including any sector fund in our core portfolios. At best one sector that may qualify for a long-term portfolio would be banking. But that again may be a recommendation outside the Select list.

Thanks
Vidya

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I think this exchange illustrates both the active debates we have internally, as well as the core objective of our advisory services – ‘to mitigate risks as much as possible and then building wealth efficiently’.