FundsIndia Recommendations: A Round Up

Our Hits and Misses for 2012-13

As we bid goodbye to 2013, it would be incomplete if we did not take stock of how the fund recommendations and reviews we send you through the weekly e-mails fared. After all, we need to both pat ourselves a bit for the winning strokes and own up to you for the calls that went sore.

For this exercise, we started from our first actively recommended call beginning October 1, 2012 and took the cut-off for calls as June 30, 2013. Calls given between July-December 2013 were not considered as it would be too short a time frame to assess. Returns were as of December 27, 2013.

Methodology and Universe

This gave us about 22 funds with ‘invest calls’, 22 funds given either as strategy calls or as reviews (suiting only specific investors) and hold calls. The rest were pure strategies and NFO reviews and therefore, not considered.

As it would be difficult to have a common thread to measure the average returns of our calls, we resorted to annualizing all the fund returns and compared it with a few common benchmarks over the same period as each of the calls. Returns were taken point to point for this purpose.

Please note that the actual returns (for recommendations less than 1 year) may not therefore be what is annualized. It is only for uniformity purpose that we have annualized them.

The benchmarks were S&P BSE Sensex and CNX Midcap for equities; the NSE Treasury Bill Index and NSE G-Sec Composite Index for debt funds.

Equity Performance Surprises

Honestly, we did not expect any fireworks from our calls. For one, since our first call, which started on October 2012, we have hardly completed a year and most of the calls have a longer tenure. Having given that convenient disclaimer, the markets too were far from kind.

2013 saw debt markets gallop at a fast pace, only to collapse in the second half. It was the reverse for equities, which remained volatile for most part, catching up in a final dash towards the end.

Perhaps because of our low expectations, the  equity fund returns did surprise us a bit. The average annualized returns of equity and balanced funds on which we had an ‘invest’ call was 12.7 per cent, as against the respective indices’ average return of 8.8%.

It is noteworthy that SIPs would have delivered more. We have considered point-to-point returns from our call date since we will have to reasonably take ownership for the timing of our call as well.

More interestingly, the returns from some of the funds ‘reviewed’ by us or those on which we had ‘hold’ calls, delivered much more – a good 29.6%, as against indices’ return of 10.9%. Clearly, this was aided by some of our reviews of international funds – specifically US funds.

Among the ‘invest’ equity calls, Religare Tax Plan, ICICI Pru Dynamic, ICICI Pru Focused Bluechip and Religare Mid N Small Cap were among the best calls; some of which we can take pride of, for specific reasons.

While ICICI Pru Focused Bluechip seems like a true winner on the charts today, at the time of our call in March, this fund had seen slippage in performance and saw its rating drop with some rating firms. Also, a change in fund management a few months before the call was also viewed with skepticism. ICICI Pru Dynamic, too, went through such a phase.

Religare Mid N Small Cap, which was incidentally the first call with which we started our weekly fund recommendations, was a fund with small asset size and therefore ignored by most, despite sound performance.

Of the mediocre performers, L&T Tax Advantage was a call we could have skipped. We were hopeful of the fund’s renewed performance after its take over by L&T. The fund was removed from our Select Funds’ list a couple of quarters ago. Others such as HDFC Mid-Cap Opportunities (given in January 2013) with returns of just 8.5% may seem lack lustre prima facie, but far outperformed the CNX Midcap performance (over the same period) of -6.2%.

Among our review calls (which are basically our way of picking interesting funds but leaving it to investors to take a call because they may not be suitable for all), US focused funds from ICICI Pru Mutual and Franklin Templeton respectively, and theme fund Franklin Build India took the honours. The last fund, was a complete dark horse play, and we are glad it worked. We intend to feature it again, for investors looking for tactical theme positions.

Lesson with our Equity Calls

We realize that many of the calls that did exceedingly well were risky ones – theme or international funds or risky mid-caps. Being a conservative bunch, they were but our review calls and we did not brave ourselves to give an outright buy on them. In other words, we picked them right and showcased them for you without telling you to buy them.

This year, we will attempt to (with enough disclaimers though) feature some choice tactical calls, which will hopefully, pep your overall portfolio returns. Otherwise, we think our equity calls may not leave much to complain about.

Debt disappoints but wait…

Now for the sober part. Our debt calls paled in comparison to our equity calls. The returns on our active ‘buy’ calls were just 4.3% as against indices’ return of 0.35%. Okay, some consolation that we fared better than the indices. Our ‘strategy’ buy call on liquid funds did a lot better with an average 8.3% return (index 8%) while our strategy buy call on high-risk ‘income funds’ was a miserable -1.2% (index fell by -2.6%).

So what went wrong? Ok, these were the calls before the July collapse; simply put, calls made at the peak and calls mostly for long tenure funds, because interest rates were falling then.

Some of our worst calls were in debt-oriented funds – Reliance MIP and Franklin India Life Stage FoF 40s Plan. Yes, the long-dated instruments in these funds caused a downfall post July, when rates started climbing up. We realized, rather late, that MIPs, in general, did not go much for shorter tenure instruments. So these funds did not change their portfolio maturity even when rates steepened.

Other than this, while the liquid fund call was timely, our strategy call in May 2013 on income funds, which was simply a call on interest rates, completely went against us  as a result of the totally unexpected liquidity tightening measures in July, followed by 2 rate hikes (funds such as Birla Sun Life Income Plus, SBI Dynamic Bond, Reliance Dynamic Bond, SBI Income and Templeton India Income Builder were featured by us in our May call).

Having said that, the return prospects for these funds look mighty high now, given the steep fall, and we would still watch over these funds for 6 more months before we consider reversing them.

The lesson from our debt portfolio is that we should rather play it safe on the duration – even for longer tenure portfolios. Income funds, in our Select Funds list now, do not have any scheme with high exposure to gilts or high average maturity. Yes, such funds may offer higher returns when rates fall but the volatility caused by high duration is something an investor’s portfolio can do without.

Fund recommendations given between Oct.1 2012- June 30, 2013
Returns as of Dec 27, 2013
* Equity indices – BSE S&P Sensex, CNX Midcap

That’s the round up of our calls. We hope to bring to your mail box more interesting funds  and strategies that will, hopefully, capture trends in a timely manner.

As we said earlier, watch out for our tactical calls (strictly for risk takers) in 2014. For others, we can with certainty say that 2014 will be a year to accumulate equities. For those holding on to debt, do wait for some time, as the party, when it happens, will not last long; like the New Year’s.