The freefincal Equity Mutual Fund Performance Screener November 2018 edition is available for download. Use this screener file to easily find best performing equity funds that have consistently outperformed category benchmarks/indices with good downside protection (better performance when the index is down) and/or upside performance (better performance when the index is up). This screener is meant for DIY investors to select a mutual fund (not review existing holdings). The “PlumbLine” is a set of handpicked mutual funds intended for the new investor to quickly get started when they use the Freefincal Robo Advisory Software Template.
Updates for November 2018
- Re-scanned value research to include funds missing in previous editions
- Provide two screeners (1) with normal benchmarks and (2) with freefincal benchmarks.
- Included the Nifty blend index (50% Nifty 50 + 50% Nifty Next 50) as a benchmark
What does this Equity Mutual Fund Performance Screener cover?
It gives you three outputs:
- Rolling return outperformance consistency That is over every possible 1Y,2Y,3Y,4Y, 5Y periods, the fund returns are compared with category benchmark returns. Higher the outperformance consistency, the better. Suppose 876 fund returns were compared with 876 benchmark returns and the fund has beaten the benchmark 675 times, the consistency score will be 675/876 ~ 77%.
- Upside performance consistency over 1Y,2Y,3Y,4Y, 5Y: Higher the better. A score of 70% means, 7 out of 10 times, the fund performed better than the category benchmark when the benchmark was moving up. This is a measure of reward.
- Downside performance consistency over 1Y,2Y,3Y,4Y, 5Y: Higher the better. A score of 60% means, 6 out of 10 times, the fund performed better than the category benchmark when the benchmark was moving down. This is a measure of risk protection.
When to use this mutual fund screener
I recommend using this file only when you are on the lookout for a new fund after completing the following steps: Define need and duration —-> Decide asset allocation (use this tool) —-> Decide product category (use this guideline for mutual funds) —-> Then apply this screener for equity funds. Since the debt mutual fund space is continually shifting and a qualitative search is necessary, I believe it is dangerous to build a debt mutual fund screener and therefore will not. If you open the screener file, you see column headings such as this. You know the fund category; benchmark; Fund name; no of 1Y returns of the benchmark(index); no of 1Y returns of the fund; no of times the fund 1Y return is above index 1Y return; the 1Y rolling return consistency; upside performance consistency and downside protection consistency. These columns are repeated for 2Y,3Y,4Y and 5Y. Now you can screen by filtering out funds that have return outperformance consistency of >=70% a downside protection consistency >= 70% and so on. You can do this manually with the excel filter buttons on use the macro buttons as shown below.
Normal Benchmarks Used
These are benchmarks that are closest to the fund type and are used by many funds in each category.
|Infrastructure||EQ-INFRA||NSE Infra -TRI|
|Large-cap||EQ-LC||Nifty 100 TRI|
|Value Oriented||EQ-VAL||Nifty 100 TRI|
|Small Cap||EQ-SC||Nifty Smallcap 50 TRI|
|Multi-cap||EQ-MLC||Nifty 200 TRI|
|Large and Midcap||EQ-L&MC||Nifty 200 TRI|
|ELSS||EQ-TP||Nifty 200 TRI|
|Hybrid Aggressive (balanced)||HY-AH||BSE Balanced Index|
The categories are the same as that used by Value Research. BSE Balanced index use to benchmark equity-oriented balanced fund is one of my own making: A new & accessible benchmark for balanced mutual funds
Nifty Smallcap 50 is being used for the first time to be in-line with the idea of a “normal” benchmark. As regards Nifty 100, see: Will large-cap mutual funds struggle to beat Nifty 100 Equal Weight Index?
Nifty 200 is no slouch either: List of funds that have outperformed Nifty 200 & Nifty Midcap 150 Total Return Indices
Freefincal Benchmarks Used
As an alternative to the usual category benchmarks, I think it is essential to consider two benchmarks that are readily available for index investing. (1) Nifty Next 50 for volatile funds and the Nifty Blend which is half of Nifty 50 and NIfty Next 50. This is substantially equivalent to the Nifty 100 Equal weight index. You can read more about the NIfty Blend index here: Can I start Index investing with 50% Nifty 50 and 50% Nifty Next 50?
|Banking||EQ-BANK||Nifty Next 50 TRI|
|Infrastructure||EQ-INFRA||Nifty Next 50 TRI|
|Large-cap||EQ-LC||Nifty Blend Index|
|Value Oriented||EQ-VAL||NIfty Blend Index|
|Small Cap||EQ-SC||Nifty Next 50 TRI|
|Mid-cap||EQ-MC||Nifty Next 50 TRI|
|Multi-cap||EQ-MLC||Nifty Blend Index|
|Large and Midcap||EQ-L&MC||Nifty Blend Index|
|ELSS||EQ-TP||Nifty Blend Index|
|Hybrid Aggressive (balanced)||HY-AH||Nifty Blend Index|
As for Nifty Next 50, the reason why it is used extensively is due to its fantastic track record in beating actively managed funds (regarding returns, not risk management): Nifty Next 50: The Benchmark Index That No Mutual Fund Would Touch?!
Due to the new results presented in my talk on index investing: Can we get higher returns with lower risk?, the Nifty 100 EW index is a much better choice of large-cap and value benchmark than the nifty 50 or nifty 100.
Reward measure: Rolling returns outperformance consistency
Rolling returns are a simple way to estimate how consistency a fund has outperformed a benchmark. Take the case of Quantum Long Term Equity (the fund in the graph below) and BSE Large Cap (index in the chart below). Bet 31st Aug 2008 and 9th Sep 2017, there are 991, 7-year duration. If the return for each of these durations is plotted for the fund and index together, we will get a graph like this.
The corresponding entries in the screener sheet would be as below (this is an example):
Notice that out the 991 fund returns, all of them are higher than the chosen index. Thus the rolling return outperformance consistency over 7 years =
= 991/991 = 100%. Naturally, higher the rolling return outperformance consistency, the better.
Reward and Risk measure: Upside Performance & Downside Capture
If you wish to understand how these are calculated, please read this first: An introduction to Downside and Upside Capture Ratios and then proceed to this one for example. For some funds, a high downside capture consistency will lead to better returns, and for some funds, a high upside capture consistency will lead to better returns. The screener can help distinguish between the two types of performers. Recommend read: What is mutual fund downside protection and why is it important?
How to use the Equity Mutual Fund Performance Screener
There are multiple ways to screen for mutual funds. I will discuss a couple of examples. If you are investing with a clear strategy, you should be clear about what category fund to choose. So the first step is to select the category. You can either use the macro buttons (top right), Or you can do this manually: Then, method A: Set the 3Y and 5Y rolling return outperformance consistency to be above 70% or so. That should give you a nice short list to choose from. Then among these, you can visually look for funds with right downside protection consistency and pick one. Method B: Look for funds with above 70% downside protection consistency over 3Y and 5Y and choose one. Remember, never set narrow filters and do not be too demanding. Wanting to select the fund with the best past performance is plain immaturity. Your screening criteria should yield 5-6 funds at all times. Why should I use this screener? Why can I look at trailing returns and screen? Trailing returns are say, 3Y or 5Y returns calculated with the last business date (and 3Y and 5Y prior). This is just one data point to consider. Here we find a lot more to determine consistency.
1: There is a new sheet called standard deviation. This is a measure of how much individual monthly returns deviate from the average over 1,2,3,4,5 years. I will discuss its usage tomorrow.
2: There is a new sheet called “25% performance margin”.
Here you will see the following columns
No of rolling return entries Index (1 Year): Say 100 (1Y data points)
No of rolling return entries Fund (1 Year): Same as above: 100
No of times fund has outperformed index (1 year): Say 60. That is, out of those 100 returns, 60 fund returns are above index returns.
Rolling return outperformance Consistency Score (1 years) : 60/100 = 60%
No of times fund outperformed the index by 25% 1Y: out of those 60 times fund return was higher than the index, how many times was the fund return 25% more than the index? That is:
(fund return – index return)/index return >= 25%. Say this is 20 times.
% outperformance (by 25%) 1Y : 20/60 ~ 33%
No of times fund underperformed index by 25% 1Y out of those 40 times fund return was less than the index (100-60 as above), how many times did the fund return fall more than 25% of the index return. That is:
(fund return – index return)/index return <= -25%. Say this is 15 times.
% underperformance (by 25%) 1Y: 15/40 ~ 38%
Upside performance consistency (1 year): Whenever the index gave a positive monthly return, how often did the fund give a better positive return? Higher the better.
Downside protection consistency (1 year) Whenever the index gave a negative monthly return, how often did the fund give a less negative return? Higher the better.
The above columns will be repeated for 2,3,4,5 years.
How to screen for the best equity funds in November 2018
Thanks to Mohit Jain for pointing out an error.
You can upload the file to Google sheets if you want and work.
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