Use this screener file to hunt for equity funds that have consistently outperformed category benchmarks with good downside protection and/or upside performance. This screener is meant for DIY investors who hopefully would appreciate these unique metrics. The “PlumbLine” is a set of handpicked mutual funds meant for the new investor to quickly get started when they use the Freefincal Robo Advisory Software Template.
Btw: Step 2 of ₹e-Assemble (laying the foundation for wealth) is out now. Have a look in case you missed it in the weekend
Out of the 416 equity funds listed at Value Research, 299 funds are at least 3Y old with consistency data listed. About 33 funds could not be calculated perhaps due to faults in the AMFU NAV history or incorrect fund code (will check this). And 83 funds are less than 3Y old and not part of this study.
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 use this screener for equity funds.
Since the debt mutual fund space is constantly 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.
The entries seen with “3 years” will again be repeated for “5 years” and “7 years” as shown in the second panel.
Category Benchmarks Used
| Category | Category Code | Benchmark |
| Banking | EQ-BANK | BSEBankex-TRI |
| FMCG | EQ-CG | BSEfmcg-TRI |
| Infrastructure | EQ-INFRA | BSEInfra-TRI |
| International | EQ-INTL | Nifty Next 50 TRI |
| IT | EQ-IT | BSEIT-TRI |
| Large cap | EQ-LC | BSELargeCap-TRI |
| Mid-cap | EQ-MC | Nifty Next 50 TRI |
| Multi-cap | EQ-MLC | Nifty Next 50 TRI |
| Others | EQ-OTH | Nifty Next 50 TRI |
| Pharma | EQ-PH | BSEhealthcare-TRI |
| Small Cap | EQ-SC | Nifty Next 50 TRI |
| ELSS | EQ-TP | Nifty Next 50 TRI |
| Balanced | Balanced | 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
As for Nifty Next 50, the reason why it is used extensively is due to its fantastic track record in beating actively managed funds (in terms of returns, not risk management): Nifty Next 50: The Benchmark Index That No Mutual Fund Would Touch?!
Other benchmark choices are fairly straightforward.
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 (fund in the graph below) and BSE Large Cap (index in the graph below). Bet 31st Aug 2008 and 9th Sep 2017, there are 991, 7 year durations. 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 =
(no of times the fund has outperformed the index)/(total no of returns)
= 991/991 = 100%.
Naturally, higher the rolling return outperformance consistency, the better.
Reward and Risk measure: Capture Ratio Consistency Score
The upside capture is a measure of excess gains when compared with the benchmark. For example, an upside capture of 110% over 3 years implies, that the fund has captured 10% more than the benchmark when the benchmark monthly returns were positive. Higher the upside capture, the better.
The downside capture is a measure of loss protection. For example, a downside capture of 80% over 3 years implies that the fund has only captured 80% of the benchmark losses when the benchmark monthly returns were negative. Lower the downside capture, the better.
Please read this for more details: An introduction to Downside and Upside Capture Ratios.
The screener calculates upside capture and downside capture on a rolling basis over 3Y, 5Y and 7Y periods and calculates a consistency score.
upside capture consistency = no of times upside capture was > 100%/(total no of upside capture points)
So higher the consistency, more aggressive is the fund in outperforming the benchmark during up-market months.
downside capture consistency = no of times downside capture < 100%/(total no of downside capture points)
So higher the downside capture consistency, better is the fund in protecting investor money during down market months.
Many readers have got confused about this and I wish to clarify again:
All consistency measures (whether rolling return; upside or downside), higher the value the better. This is the only metric that you will see on the sheet.
Now have a look at the capture ratios for Quantum Long Term Equity
The upside consistency is 0%. This means that whenever BSE large cap gave positive monthly returns, the funds have never (over the 7Y period considered) been able been able to beat the index. This on its own, appears bad. However, when the index fell over a month, the fund fell less about 92.6% of the monthly returns in the 7-year window. That is a terrific record. This is why the fund has been able to beat the index consistently.
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 the two types of performers.
Using the screener
You can use Excel data filter features to choose a particular fund category
Or, you can set the rolling consistency over 3Y (and/or) 5Y (and /or) 7Y to be above 80% or 75%
This should result in a nice small set to work with. You can also do the same kind of filtering to the capture consistencies and choose a fund.
This video does not include the rolling upside, downside data, but the spirit is the same.
I would recommend choosing a fund with a good rolling return outperformance consistency combined with a good downside protection outperformance consistency.
In other words, choose funds that beat the index by reducing the amount by which it falls during market lows rather the funds that beat the index when the index is moving up. This way, we can sleep a lot more peacefully.
Download the Freefincal Monthly Mutual Fund Screener (November 2017): Risk vs Reward Consistency
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Looks like HDFC Equity and ICICI Prudential Value Discovery are moved to Large Cap category from Multi Cap. Of course VR has same info. I am not sure if actual fund houses re-classified or not
There are no classifications by fund houses!
I don’t see Index fund in category. Can you please add Index funds also
Because it makes no sense to compare an index fund with the underlying index or with another index!
Pattu sir,
I had some queries
A) As far as I can understand down side capture is DOWNSIDE CAGR FUND/ DOWN SIDE CAGR INDEX. This simply means how closely is the fund mimicking the index when the index was giving a negative return. The less it falls below 0 the better it is. If there are two funds both of which have the same Index as the benchmark, isn’t the fund with lower DOWNSIDE CAGR FUND better than with a higher DOWNSIDE CAGR FUND? (fund A has a downside CAGR of -11% and the Fund B has a downside CAGR or -15%, isn’t Fund A better than Fund B) If I am correct then lower the absolute value of DOWNSIDE CAPTURE INDEX better it is.
B) In the graph showing 991 return points there is not a single entry where either the fund or the index has given a return less than 0. In this case how do you calculate the downside capture index? Because both “downside CAGR fund” and “Downside CAGR Index” are not calculable. How come your graph shows 92.59% as the downside capture ratio?
What am I missing?
Kishan
Your understanding of downside capture is correct. However, I am not recording the downside captures. I am recording the no of times the downside capture was less than 100%. That is the consistency with which it was less than 100%.
I think’ I am a bit confused. In the example given with 991 entries, you tell that the downside capture consistency is 92.59% But I see that there is absolutely not a single entry below 0%. Not even by the benchmark. How come then is the downside capture 92%?
Secondly, based on your method how do we compare two funds with respect to downside capture? Suppose that there are two funds and both are related to the same benchmark, and both the funds have always lost less than the benchmark during the down side years, then both will have a consistency of 100%(according to your answer). How do we then, differentiate between the two funds with respect to downside capture?
Please explain
Regards
Kishan
“But I see that there is absolutely not a single entry below 0%. Not even by the benchmark. ” You are looking at the wrong data. Downside protection is based on monthly returns and this is not shown.
If two funds have the same downside protection consistency then they cannot be distinguished by this method. This is true for any method!!
Ok. Thanks for clarifying the differentiation. To evaluate between two funds we should see at downside capture (downside CAGR of fund/downside CAGR of benchmark) and not just at the downside protection consistency. The consistency can be very similar but downside capture may be very different.
Thanks once again
Kishan
The point you fail to understand is when you look at downside capture, you are looking at ONE duration. When you look at downside protection consistency, you are considering downside capture for all possible durations. It should be obvious as to which is better.
Dear Sir,
Your point is well taken. The method to compare any two funds would be possible by CAGR method only. For eg. If there are two funds (matched to same benchmark) and both are giving better returns than the benchmark (be it more positive than benchmark during the positive months or be it less negative in the negative months) then the consistency of both these funds will be 100% in upside months and 100% in downside months. But we don’t select JUST ANY fund which is consistently giving better returns than benchmark, we also see the CAGR of both the funds and then select the better among the two.
What I imply is that the consistency method will help in shortlisting the funds who gave less negative returns when the benchmark was negative, but the CAGR method would help further to isolate the better ones. Am I incorrect?
Kishan
So what would you do if the two funds had the same downside capture? I hope you recognise the difference between comparing ONE value calculated over ONE duration (which can be arbitrarily chosen) versus calculating the same value over all possible durations!
Thanks for reply sir.
In the screener, the rolling returns of each duration were calculated on a daily rolling basis. Were the consistency figures also calculated on a daily rolling basis?
Kishan
It is on monthly rolling basics and before you ask, rolling the month return on a daily basis is not feasible, nor is it worth it.