When we wish to choose a mutual fund, it is reasonable to expect it to have beat a benchmark (either the one chosen by the fund house or one representative of its category) consistently – say 8 times out of 10. Can we also impost an additional constraint? Expect the fund to fall lesser than the benchmark? Is that reasonable? Is there any correlation between the two? Here are some insights from the Sep 2017 Freefincal Equity Mutual Fund Outperformance Screener.
Announcement: As part of Diwali sales, my first book: You can be Rich Too with Goal-Based Investing is available for a 28% discount (rs. 286) at Amazon and at a discount of 37% (Rs. 251) at Flipkart. You can also get my second book Gamechanger for Rs. 199 (Kindle Rs. 100) at Amazon
Three-year data
Rolling returns over a 3-year period was considered for 316 funds. For eg. if we consider funds from April 3rd 2006 (the oldest date for which NAV is available), to Sept 8th 2017, we can find 2008, 3-year data points. For funds that were started after April 2006, the no of 3-year data points will be correspondingly lower.
For 54 out of the 316 funds, 80% of the total no of 3-year returns were higher or equal to than the category benchmark/index (see the index list in the above post). Or in other words, the 3Y rolling return outperformance consistency >= 80%.
🔥Secure your future with our Robo-advisory tool trusted by over 3,500 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams, turn your financial goals into reality. 🔥
If we consider this 54 fund subset, only 8 funds had an upside capture consistency of >= 80%. That is, 8 funds show a tendency to outperform the index when it moves up (higher positive return than the index).
On the other hand, 22/54 funds had a downside capture consistency of >=80%. That is, 22 funds show a tendency to outperform the index when it moves down (lower negative return than the index).
These results are summarised below.
Similar data over 5Y and 7Y is shown below.
Five-year data
Seven-year data
For the Sep 2017 screener data, a trend is reasonably clear: about 50% of the funds consistently outperform an index, do so via downside protection – capturing a loss less than that of the index.
Upside performance – capturing more gains than what the index makes does not seem to have enough representation.
At least for this month, this trend is heartening. It is not hard to spot a fund that beats the benchmark by lowering the extent of falls.
Downside capture consistency >= 80% AND upside capture consistency >=80%
Over 7 years, only 4/230 funds have this.
Over 5 years, only 4/274 have this.
Over 3 years, only 9/316 funds have this.
I am intrigued by this. There seems to be a mutual exclusivity between funds with good upside performance and funds with good downside protection.
Out of this 9, there is a fund (can you spot it?) that shows
downside capture consistency = 100%
Upside capture consistency = 86%
rolling return outperformance consistency of 1/426. That is out of 426 3-year returns, the fund has beat the index (Nifty Next 50) only once!
Its investment objective (source: VR)
The scheme aims to follow bottom up stock picking, without any bias for sectors or market capitalizations. The scheme will attempt to be fully invested in equities at all times, however, upto 20 per cent of its assets can be invested in cash and cash equivalents.
Userguide (done with an older version, but steps are same):
Use this form to ask Questions or reg. the robo template ONLY (For comments/opinions, use the form at the bottom)
And I will respond to them in the next few days. I welcome tough questions. Please do not ask for investment advice. Before asking, please search the site if the issue has already been discussed. Thank you. PLEASE DO NOT POST COMMENTS WITH THISFORM it is for questions only.
[contact-form][contact-field label=”Name” type=”name” required=”1″][contact-field label=”Email” type=”email” required=”1″][contact-field label=”Ask your question (Got an opinion or comment, use comment box at the bottom of the page. DO NOT post them here)” type=”textarea” required=”1″][/contact-form]
GameChanger– Forget Startups, Join Corporate & Live The Rich Life You want
My second book, Gamechanger:Forget Start-ups, Join Corporate and Still Live the Rich Life you want, co-authored with Pranav Surya is now available at Amazon as paperback (₹ 199) and Kindle (free in unlimited or ₹ 99 – you could read with their free app on PC/tablet/mobile, no Kindle necessary).
It is a book that tells you how to travel anywhere on a budget (eg. to Europe at 50% lower costs) and specific investment advice for young earners.
The ultimate guide to travel by Pranav Surya is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for ₹199 (you will be emailed the pdf after payment)
You Can Be Rich Too with Goal-Based Investing
My first book with PV Subramanyam helps you ask the risk questions about money, seek simple solutions and find your own personalised answers with nine online calculator modules.
