46 equity schemes beat Sensex to new highs

Redemptions, cash-calls acted as barriers for others

The net asset values (NAVs) of 46 equity mutual funds hit all-time highs before the BSE Sensex scaled a new peak. These funds recorded their highest NAVs by October 29 —the day before the Sensex recorded its all-time closing high; in some cases, these beat the index to peak levels by about a fortnight.

The 46 funds account for about 20 per cent of the 240 equity mutual fund schemes and about Rs 20,000 crore in assets under management, according to data from mutual fund tracker Value Research.

Of the 46 equity mutual funds, 34 recorded their highest levels in the week the Sensex hit its record high, according to data as of October 29. The remaining saw all-time NAV highs earlier, some as early as October 18.

V Balasubramanian, fund manager at IDBI Asset Management Ltd, responsible for managing one of the funds with an all-time high NAV, said those who avoided cash calls during the pessimism that prevailed a few months ago had fared well. “There was an atmosphere of total pessimism; people who took cash calls to deal with the situation would have been affected negatively,” he said.

A cash call is when a fund manager holds a portion of his assets in the form of cash, usually on expectations the market would fall.

Balasubramanian said overall redemption pressure, which forced funds to liquidate holdings to repay investors who wanted to withdraw from the scheme, had affected the industry’s performance. “One cannot always liquidate when redemptions happen; one has to do it in anticipation of coming redemptions. This has an effect on performance.”

THE EARLY BIRDS

Forty-six schemes had already hit their highest-ever NAVs by October 29, the day before the Sensex hit an all-time closing high

Schemes which stayed invested despite pessimism have outperformed

More schemes expected to peak as broader market joins rally

Many fund managers had taken cash-calls, expecting volatility among those yet to reach highs

Redemption pressure to have forced them to liquidate positions in other cases

A fund manager with a foreign fund house whose schemes weren’t among those that saw record levels said non-blue-chip stocks were still off their highs and more funds would do well and caught up. “The broader market has not participated, which has had an impact on the performance of schemes that had these as part of their portfolios. This is expected to change in the next leg of the rally, which is typically when such scrips begin to catch up,” he said.

He added while many mutual fund schemes might not be at their NAV highs, these would be close to such levels. Most schemes recorded their previous highs around the time the Sensex had last recorded a high — in November 2010. While 71 schemes saw NAV highs in 2010, 66 did so in 2008.

The 46 schemes that hit new highs before the Sensex have combined average assets under management of Rs 21,729 crore, about 17 per cent of the total assets under equity schemes. Of these schemes, 14 are index funds or exchange-traded funds that are passively managed, without active stock-picking that characterises other schemes.