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Monday,June11,2012

ActivelymanagedFundsCreateWealth
Publication:TheEconomicTimes,Agency:Bureau
Edition:Ahmedabad,PageNo:13,Location:TopCenter,Size(sq.cms):500

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Activelymanaged
FundsCreateWealth

Suchfundsfollowasoundinvestmentstrategy,reducedownsideinbadtimesan(deliver
superiorreturnswhenmarketsgoup,saysNikhilWalavalkar
nvestorsincludeequitiesintheir
portfoliosbecausetheyknow,or
theyhavebeentold,thatisthebest
waytogeneratehigherextrareturns.
Butinthelastfiveyears,equityhas
underperformedotherassetclasses,
includingfixedincomeandgold.Nifty
Indexhasdelivered3.54%returnsin
thelastfiveyearsasonJune7.The
CRISILSPIVAreportforDecember
2011pointsoutthat65%ofthelarge
c a p e q u i t y m ut u a l f u n d s h a v e
underperformedNiftyduring
theperiod.Insuchascenario,investors
oftenwonderwhetheritreallymakes
sensetoinvestinactivelymanaged
fundsandpayahigherfeetoafund
managertotakecareofthemoney
whenheorshecan'tevenbeatthe
index.
"Informationasymmetryremainsa
peculiarfeatureofIndianmarkets,
whichgivesamplescopeforactive
managementoffund.Youshouldinvest
inwellmanagedequityfundswitha
longtrackrecordforreasonablyhigh
returnsthantheindexoverthenextfive
years,"saysGajendraKothari,manag
ingdirectorandchiefexecutiveofficer,
EticaWealthManagement.
Don'tlaughatthatstatement.Infact,
therearearound13diversifiedfunds
thathavedelivereddoubledigitreturns
duringthelastfiveyears.Accordingto
ETIGdata,IDFCPremierEquityFund
topsthelistwith15.31%returns.
Forbeginners,anactivelymanaged
fundpreferstobuystocksusinganin
vestmentstrategyitcouldbevalue,
growth,quantormixofalltogener
atereturnsinexcessofthemarkets.
Thisisdiagonallyoppositetoan
indexfund,whichpreferstoreplicate
theindexinitsportfolio.Indexfunds
a r e p o pularindevelopedmarkets,
whichareinformationefficient.
ButIndianmarketsaredifferent.Indi
aninvestorsstillprefertobewithac
tivelymanagedfunds.Ofthen,48,310
croreinvestedinequityfunds,only
Rs4,217croreareinvestedthrough
indexfunds,asperMaystatistics.An
indexfundassuresyouexposuresto
t h e u nderlyingindexattheleast
possiblecost.Butithasitsown
disadvantages.Asthefundmanager
remainsinvestedinalltimes,thereis
noopportunitytobookprofits.And
thereisnoquestionofmakingmore
returnsthanthebroadermarket.An
activefundmanagertriestodoexactly
that.
"Anactivefundmanageraimstobring
inalphaexcessreturnsovermarket
returns bysectorselectionand
stockselectionafterrigorousresearch,"
saysRamanathanK,CIO,Single
ManagerInvestments,INGInvestment
ManagementIndia.Bymodifying
allocationtoparticularsectors,the
fundmanagercanincreasethebetaof
theportfoliotohelpthefund
participateinrallies.Towardstheend
ofCY2011,somefund

managerspickedupinfrastructure finedtheirinvestmentstrategytobe
companiesatattractivevaluations, valuedriven.Disciplinedapproachto
whichmovedmuchfasterthanthemar wardsmoneymanagementseemstode
ketwhenthemarketturnedupinthe liverformostoftheseschemes.
firstquarterofCY2012.
Theinvestingcommunity,too,has
Ifthefundmanagersensesweakness takencognizanceofthisperformance
inthemarket,hemaychoosetoreduce andhasrewardedthewinners."The
thebetaoftheportfoliotocontainthe dayswheneachnewfundofferwould
downside.Hemaychoosetolookat raiseafewhundredcroresarelong
deferfsivesectorsinsuchtimes.For gone.Nowadays,schemesthathavea
exampleinearly2011,someseasoned goodtrackrecordandaremanagedbya
fundmanagerspreferredtogoover fundhousethathasgotitsprocessesin
weightonFMCGstockstodefend p l a c e g e t s m o s t o f t h e n e w
theirportfolios.Ofcoursethereisa investments,"saysGajendraKothari.
moreaggressivestrategytoo.
Sixofthe13schemesthathaveper
"Afundmanagercanoccasionallytake formedwelloverthelastfiveyears
cashcalls,too,ifhesensesasteepcor havemorethanRsl,000croreassets
rection,"addsRamanathan.Whenthe undermanagement.HDFCTop200,the
marketismovingdown,keepingsome largestequitydiversifiedfundinIndia
partoftheportfolioincashcertainly withRs11,381croreinassets,also
limitsdownside.
appearsonthelist.
Ofcourse,thefundmanagerhastobe "Theabolitionofentryloadsonmu
carefulwithcashcalls,asasuddenrally tualfundshasleftdistributorswith
instockscanpulldownthescheme's trailcommissionastheonlyreliable
performance.Manyfundsrestrictthen sourceofincome.Toearnconsistently,
cashexposurestoamaximumof10% professionaldistributorsprefertobe
tolimitthisrisk.
withschemesthathaveshowngood
"Agoodactivelymanagedfundshould performance,"saysalargeindependent
reducethedownsideinbadtimesand financialadvisorinMumbai.
deliversuperiorreturnsthanthemarket Itisthetimetosteerclearofschemes
returnsinthelongrun.Inmostcases,a showingoccasionalspikesinperformance.
valueorientedinvestmentstrategy Asthemarketsshowsomesignsof"
shouldwoflfBetterthanamomentum recoveryontalksofpossibleimprove"
chasingone,"saysChetanParikh, mentinliquidityandcashflowstoIndia
director,JeetayInvestments.The13 fromdevelopedworld,investorswouldbe
schemesthathaveoffereddoubledigit betteroffbeingwithtimetestedactively
returnsoverthelastfiveyearsinclude managedfundstoensurelongtermwealth
sixschemesthathaveclearlyde
creation.