Last Updated on April 29, 2020 at 11:23 am
Here are eight thematic or sectoral mutual funds that have consistently beaten the Nifty 100 Total Returns Index in terms of both risk and reward. Five of them with the same theme!
The analysis was carried out with 85 sectoral/thematic funds. The full details of the study along with data for other mutual fund categories can be found here: April 2020 Equity Mutual Fund Performance Screener.
Investors should not use this data for investment decisions. Sectoral funds are generally more volatile than diversified indices or mutual funds with a variable performance from period to period.
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While most retail investors can safely avoid such funds, those interested could toy with these funds with their satellite portfolio after fully appreciating risks.
The funds were benchmarked with Nifty 100 TRI and not their own individual benchmark. Those interested in these funds are advised to dig deeper. The data presented is as on 9th April 2020. The performance could have changed since then.
Also, due to the SEBI regulations, the scheme mandate may have changed in the recent past. This has not been factored in the calculations.
How the funds were selected
We consider every possible 1,2,3,4 and 5-year investment windows bet 1st Jan 2013 and April 9th 2020.
We shall define a, return outperformance consistency = no of times fund beat index/tot no returns. For example, say we have 100 13-year return data points and a fund got a return higher than the index in 65 of those instances. Then return outperformance consistency = 65/100 = 65%.
We then define a downside protection consistency using the downside capture ratio. This measures how much of a benchmark’s monthly losses (if monthly return < 0) a fund captures. A downside of 80% means a fund has captured only 80% of the index losses. Read more: Do active mutual funds offer downside protection? Or is it a myth?
Downside protection consistency is defined as the number of investment periods for which the fund fell less than the index (suffered lower losses) divided by the total no of periods. This is computed for every possible 1,2,3,4 and 5-year windows.
To qualify as “excellent” or as a “consistent performer” the fund should have a return outperformance consistency of 70% and a downside protection consistency of 70% or more over 1,2,3,4 and 5 -year periods.
Eight Consistent Sectoral/Thematic Mutual Funds
- Aditya Birla Sun Life India Gennext Fund (consumption)
- Canara Robeco Consumer Trends Fund (consumption)
- DSP Natural Resources and New Energy Fund (energy)
- Franklin Build India Fund (infrastructure)
- ICICI Prudential FMCG Fund (consumption)
- Mirae Asset Great Consumer Fund (consumption)
- Sundaram Rural and Consumption Fund (consumption)
- SBI PSU Fund
Reliance US Equity Opportunites Fund also made the cut but was not included in the list as it a rather young fund compared to the rest. For example, the Reliance fund has only 167 four and five-year rolling return data points while the rest had 500+ five-year returns and 750+ 4-year returns to work with.
This information should be considered as only a starting point for further analysis if you are interested in sectoral funds or investing in FMCG stocks.