BS jury picks best fund managers in the debt and equity category

While the equity categories had a bumper year, the going was tough for debt fund managers

After the initial shock of the pandemic, the equity markets rebounded strongly, aided by record foreign inflows, rising pace of vaccinations and a gradually improving economy. With interest rates in key markets at record lows and ample liquidity available, there was a rush towards riskier assets.

The result was that the small- and mid-cap categories outperformed their larger peers for the second year in a row. However, unlike last year, the equity rally this year (12 months ended September 2021) was more broad-based. While the small-cap indices such as the IISL Nifty Smallcap 250 delivered returns of 89 per cent, the Nifty 100 didn’t do too badly at 58 per cent. In comparison, last year, the large caps could barely keep their heads above water (Nifty 100 fell one per cent) while the smal-caps indices such as the BSE Smallcap gained over 14 per cent.

Barring the correction in January 2021 on weak global sentiment, delayed vaccine rollouts, new corona strains and minor decline after the second wave in April, the markets have been a happy hunting ground for investors. From their lows in April 2020, the benchmarks have more than doubled in value.

The return of the investor appetite for small caps helped Samir Rachh, who runs the Nippon India Small Cap fund, win the award in the mid- and small-cap category with returns of over 92 per cent. This is the highest return across all the three equity categories. The fund’s outperformance was led by stocks in sectors such as chemicals, IT, consumer durables and capital goods.  

In the large-cap category, Anish Tawakley who manages the ICICI Prudential Blue Chip fund outperformed the category and benchmarks. To stay ahead of the market, Tawakley looks for a demonstrated track record of profitability, a top three market position and future compounding ability while picking his stocks. His top three sectors are financials, technology and energy.

The winner of the multi-cap category, Neelesh Surana, manages Mirae Asset Tax Saver and Mirae Asset Emerging Bluechip. While Indian equities had seen the broad-based rally for the year ended September 2021, betting on businesses that capitalise on the cyclical recovery has helped Surana to deliver superior returns in the category. The core portion of Surana’s portfolio includes structural growth opportunities like outsourcing, consumer-related companies, insurance, among others. The top three sectors for the two schemes are software, pharmaceuticals and banks.

The going for assets in the debt category have been tough. After returns of 8-10 per cent between 2018 and 2020, the fall in interest rates have meant that debt investors are grappling with lower returns across debt instruments. Returns on debt instruments are in the 5.5-6.5 per cent currently. In fact, three-year AAA-rated corporate bond yields recently hit a 15-year low.

In this environment, Bhupesh Bameta beat the benchmark (CRISIL Composite Bond Fund) by over 100 basis points with returns of 6.91 per cent for the Aditya Birla Sun Life Income scheme. What helped him ace the medium to long duration category were a judicious combination of government securities, state development loans and AAA-rated corporate bonds.

In the short- to medium-duration category, Manish Banthia who manages ICICI Prudential Medium Term Bond and Short Term funds delivered returns of 5.9-7.6 per cent. After the initial crisis brought on by the pandemic, Banthia spotted an opportunity and began adding credit assets, essentially higher-risk bonds, in April and May 2020. Though the exposure to AA-rated bonds in the Medium -Term Bond scheme was at 69.3 per cent as of September 2021, the returns were achieved without taking undue risk.

Like last year, the four-member jury met virtually and debated extensively before declaring the winners. The panel was headed by G N Bajpai, former chairman of Securities and Exchange Board of India (Sebi) as well as the Life Insurance Corporation of India (LIC). It included Ashish Kumar Chauhan, chief executive officer & managing director, BSE; Sandeep Parekh, founder& managing partner, Finsec Law Advisors; and Saurabh Mukherjea, founder & chief investment officer at Marcellus Investment Managers. The data examined was for a 12-month period ending September 30, 2021, and was provided by Morningstar India.

The rankings for both equity and debt are on the basis of the Sharpe ratio, which takes into account returns generated by the funds managed by the fund manager in excess of the risk-free return based on FBIL-Mibor overnight rate, and the volatility that such returns are subject to. The average one-year return for the FBIL-Mibor overnight rate was 3.42 per cent for the period under review. All decisions taken by the jury were by consensus and unanimous with the winners in most categories outperforming their respective benchmarks.