What can we learn from funds that fell the most (& least) this market fall

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The fall in the markets over the last few weeks gives us a small window of opportunity to learn about risk in mutual funds. In this post, I list the funds and fund categories that fell the most and those that fell the least between Aug 28th 2018 and October 14th 2018. Although this is a small period, I think it is important for new investors to understand what they are in for.

The data is sourced from Value Research and all returns are absolute (percentage difference in NAV) and not annualized. We will consider diversified equity funds and hybrid funds and use the following fund category codes.

  • HY-AH Hybrid Aggressive (min 65%-80% in stocks + bonds)
  • HY-AR Hybrid Arbitrage (arbitrage + small amt of bonds)
  • HY-BH Balanced Hybrid (40-60% stocks  with no arbitrage)
  • HY-CH Conservative Hybrid (10-25% stocks and rest in bonds)
  • HY-DAA Dynamic asset allocation aka Balanced Advantage (variable stock and bond exposure)
  • Hy-EQS Equity Savings (min 65% equity much of it will be arbitrage)
  • HY-MAA Multi-Asset allocation (min three asset classes with 10% min exposure in each)
  • EQ-ELSS – tax saving funds
  • EQ- L&MC  min 35% large cap + 35% midcap stocks
  • EQ-LC min 80% large-cap stocks
  • EQ-MC min 65% in midcap stocks
  • EQ-MLC multi-cap funds no cap restrictions
  • EQ-SC min 65% small cap stocks
  • EQ-VAL follows a value investment strategy

So this is the period we are looking at

Fall in the Sensex

List of equity funds that fell the most (top 15)

FundCategoryReturn (%)
BOI AXA Large & Mid Cap Equity Fund – Direct PlanEQ-L&MC-17.27
BOI AXA Tax Advantage Fund – Direct PlanEQ-ELSS-17.25
Motilal Oswal Midcap 30 Fund – Direct PlanEQ-MC-16.96
Aditya Birla Sun Life Equity Advantage Fund – Direct PlanEQ-L&MC-16.18
HSBC Small Cap Equity Fund – Direct PlanEQ-SC-16.09
JM Core 11 Fund – Direct PlanEQ-LC-15.38
Tata Retirement Savings Fund – Progressive Plan – Direct PlanEQ-MLC-15.14
Baroda Pioneer ELSS 96 Fund – Direct PlanEQ-ELSS-15.06
Baroda Pioneer Midcap Fund – Direct PlanEQ-MC-14.89
DHFL Pramerica Midcap Opportunities Fund – Direct PlanEQ-MC-14.82
IIFL Focused Equity Fund – Direct PlanEQ-MLC-14.64
Invesco India Multicap Fund – Direct PlanEQ-MLC-14.62
Canara Robeco Emerging Equities Fund – Direct PlanEQ-L&MC-14.54
Aditya Birla Sun Life Small Cap Fund – Direct PlanEQ-SC-14.39
Edelweiss Mid Cap Fund – Direct PlanEQ-MC-14.37

Now, I won’t read too much into this table, just have a look and move on. There are many funds which fall in the -14% category.

List of equity funds that fell the least (top 15)

FundCategoryReturn (%)
JM Large Cap Fund – Direct PlanEQ-LC-4.21
Quantum Long Term Equity Value Fund – Direct PlanEQ-VAL-5.71
Quantum Tax Saving Fund – Direct PlanEQ-ELSS-6.07
ICICI Prudential Large & Mid Cap Fund – Direct PlanEQ-L&MC-7.19
ICICI Prudential Focused Equity Fund – Direct PlanEQ-MLC-7.36
ICICI Prudential Value Discovery Fund – Direct PlanEQ-VAL-7.53
Indiabulls Value Discovery Fund – Direct PlanEQ-VAL-8.11
HDFC Retirement Savings Fund Equity Plan – Direct PlanEQ-MLC-8.23
Quant High Yield Equity Fund – Direct PlanEQ-MLC-8.65
HDFC Top 100 Fund – Direct PlanEQ-LC-8.76
IDBI Diversified Equity Fund – Direct PlanEQ-MLC-8.97
HDFC Taxsaver Fund – Direct PlanEQ-ELSS-8.98
HDFC Focused 30 Fund – Direct PlanEQ-MLC-9.05
ICICI Prudential BHARAT 22 FOF – Direct PlanEQ-LC-9.34
SBI Large & Midcap Fund – Direct PlanEQ-L&MC-9.47

Now, keep an eye on these funds and study their long-term downside protection when this month’s freefincal mutual fund consistency screener is published. Not too surprised Quantum Long Term Equity and its ELSS fund top the list. This is a fund that people hate during bull runs and love during bear runs. Few of us love it at all times.

List of hybrid funds that fell the most (top 15)

FundCategoryReturn (%)
Tata Young Citizens Fund – Direct PlanHY-BH-14.38
BOI AXA Mid & Small Cap Equity & Debt Fund – Direct PlanHY-AH-12.81
Tata Retirement Savings Fund – Moderate Plan – Direct PlanHY-AH-12.24
LIC MF Children’s Gift Fund – Direct PlanHY-BH-11.21
IDBI Hybrid Equity Fund – Direct PlanHY-AH-11.2
HSBC Dynamic Asset Allocation Fund – Direct PlanHY-DAA-10.8
DSP Equity & Bond Fund – Direct PlanHY-AH-10.67
Quant Opportunities Fund – Direct PlanHY-AH-10.53
HSBC Managed Solutions India – Growth – Direct PlanHY-AH-10.53
ICICI Prudential Advisor Series-Passive Strategy Fund – Direct PlanHY-BH-10.32
Axis Children’s Gift – Direct PlanHY-BH-10.13
Kotak Equity Hybrid Fund – Direct PlanHY-AH-10.04
Baroda Pioneer Hybrid Equity Fund – Direct PlanHY-AH-10.03
LIC MF Unit Linked Insurance – Direct PlanHY-AH-9.95
Axis Triple Advantage Fund – Direct PlanHY-MAA-9.41

Again let us not read too much into this, although I am surprised to see Axis Triple Advantage in this list. The MAA category should not fall this much!! There are too many balanced hybrid funds here. Probably means that there are actually aggressive hybrid funds? Notice that these hybrid funds only fell a notch lower than diversified equity funds. This is important to keep in mind and one of the reasons why I keep saying treat these funds as pure equity funds.

List of hybrid funds that fell the least (top 15)

FundCategoryReturn (%)
L&T Conservative Hybrid Fund – Direct PlanHY-CH-1.92
DHFL Pramerica Hybrid Debt Fund – Direct PlanHY-CH-1.91
Essel Regular Savings Fund – Direct PlanHY-CH-1.75
Franklin India Life Stage Fund of Funds 50s Plus – Floating Rate – Direct PlanHY-CH-1.64
SBI Multi Asset Allocation Fund – Direct PlanHY-MAA-1.49
ICICI Prudential Regular Savings Fund – Direct PlanHY-CH-1.43
ICICI Prudential Advisor Series-Conservative Fund – Direct PlanHY-BH-1.12
Reliance Hybrid Bond Fund – Direct PlanHY-CH-1.09
HSBC Managed Solutions India – Conservative – Direct PlanHY-CH-0.95
Quantum Multi Asset Fund – Direct PlanHY-MAA-0.82
DSP Dynamic Asset Allocation Fund – Direct PlanHY-DAA-0.79
ICICI Prudential Equity Savings Fund – Direct PlanHY-EQ S-0.77
Kotak Asset Allocator Fund – Direct PlanHY-CH-0.59
Union Equity Savings Fund – Direct PlanHY-EQ S-0.5
ICICI Prudential Advisor Series-Hybrid Fund – Direct PlanHY-CH0.78

Notice that there are only two so-called Equity savings funds. Beware of this category! The problem is that people expect aggressive hybrid funds to only fall this much. This is ignorance.

Category-wise fall in equity funds

Category-wise fall in equity funds

There is not much one can infer from this. Across categories, the extent of the fall has been similar other than few exceptions on the higher and lower side.

Category-wise fall in hybrid funds

Category-wise fall in hybrid funds

  • Arbitrage funds would give small positive in pretty much window – bull or bear. So don’t worry about that.
  • Notice how risk equity savings funds are. Beware of these! Do not use for short-term goals
  • It is disturbing that the spread in the fall for hybrid funds is higher than for equity funds. This means a huge difference in fund management style – the single most important reason why you should ignore star ratings. No point comparing apples and oranges and offering apples, 3-stars and oranges, 5-stars
  • The spread in the conservative hybrid category especially is disturbing visually.
  • Also, the multi-asset category is equally disappointing to me. Funds that hold equal amounts of three asset classes at all times would have fallen less. The trouble is the multi-asset category also dynamically asset allocates.
  • If I must make any conclusion from this graph alone (not a great idea, but I am willing to bet that it should a reasonable guess at best), I would say, arbitrage funds and aggressive balances funds are a lot more homogenous in terms of investment style. This is crucial because if we start comparing funds with each other, they must be similar in nature, if not the same. That this is rarely the case, is what many mutual fund investors fail to recognise.

My fund fell the most! What should I do?

  1. Just ensure that you have chosen the right category and then the right fund for your need.
  2. Understand that such falls are common.
  3. Nothing else. Do not worry about this.

My fund fell the least! What does it mean?

  1. Nothing! Could be sheer dumb luck in most cases, unless you wanted a fund that protected the downside and your choice was vindicated.
  2. In any case, ensure that you have chosen the right category and then the right fund for your need.
  3. Understand that this may not happen during every fall and if it does not, it means little.
  4. Don’t let this get to your head!

Note: I don’t claim to have made some great analysis. This is only a crude representation of risk over a short time period. At best it serves to be cautious and temper expectations from our fund choices.

Use the freefincal monthly screener to be published next to hunt for funds with the best downside protection.

 

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of freefincal.com.  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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