Worst quarter in the decade for equity
FUND ANALYSIS
| Only gold ETFs have ended positive and attracted investors' wealth. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| On March 31, 2008, Indian mutual funds ended their worst quarter of the decade. The average returns of almost all categories of equity funds had their worst three months since January 2001, according to the quarterly review of fund performance released by Value Research. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Funds in the key 'Diversified Equity' category, which has the largest number of funds (194) as well as the highest investor interest, lost an average of 28.3 per cent. This was far worse than the previous worst of the decade, when these funds lost 16.9 per cent in Q1 of 2001. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Individual funds in the category lost between 16.2 per cent and 40.6 per cent between January and March this year, during which BSE Sensex and the NSE Nifty both lost 22.9 per cent. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| While equity funds registered staggering losses on an absolute basis, they did substantially worse than their benchmark indices too. Of the 277 equity funds (which includes diversified equity as well as other categories) that were part of this study, only 35 outperformed their benchmarks while 242 failed to do so. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| What's worse, of the 35 which beat the benchmark, a mere seven managed to do so by a margin greater than five per cent. At the other end of the scale, as many as 142 funds underperformed their benchmarks by more than five per cent. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Funds in the 'diversified equity' category gained an average of 21.4 per cent over the four quarters, with individual schemes' returns ranging from a gain of 53.7 per cent to a loss of 7.9 per cent. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| While equity funds are in deep strife, the normally staid world of debt funds is also giving investors sleepless nights. Even though debt fund numbers for the entire quarter look almost normal, the month of March has come as a shock. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Worsening inflation numbers and the uncertainty on the interest rates have seen the average returns of funds in the Gilt (Medium & Long-term) category lose 1.1 per cent during March. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Even short-term gilt funds, which are supposed to be insulated from interest rate shocks have had a poor month in which they gained just 0.1 per cent with six of the 18 funds in the category making losses. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The only fund category whose investors were cheering was Gold ETFs, which invest directly in gold. These funds were up 13 per cent for the quarter. Although their gains would have been higher, they lost 3.2 per cent in March. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GOLD FUNDS SHINE Gold has never been without its share of admirers, from The Gold Exchange Traded Fund (ETF) category generated a 1-year (as on April 2, 2008) return of 22 per cent. That too at a time when the global equity market is in the doldrums. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gold Benchmark Exchange Traded Fund "" launched in February 2007 and the veteran in this category "" delivered a 22 per cent return over the past one year. UTI Gold Exchange Traded Fund, launched a month later, gave 1-year return of 27 per cent.
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In the first quarter of the calendar year 2008, which has been the worst quarter for equity funds in a decade, UTI Gold Exchange Traded Fund, Gold Benchmark Exchange Traded Fund, Kotak Gold Exchange Traded Fund and Reliance Gold Exchange Traded Fund offered a cool 13.04 per cent to its investors. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Naturally the rising prices of the yellow commodity over the last few months have led the gold ETFs post smarter returns. Gold prices internationally have moved from $650 an ounce in June last year to $900 an ounce, after touching $1,000! | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The corpus of Gold Benchmark Exchange Traded Fund increased from Rs 120 crore (June 2007) to Rs 161 crore (March 2008). Net assets for UTI Gold Exchange Traded Fund also increased from Rs 135 crore to Rs 161 during the same time period. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DSPML World Gold fund, which listed in September 2007, delivered 42 per cent since launch. The FTSE Gold Mines (CAP) index gave 11 per cent during the same period. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| This year (till April 02, 2008), the fund, which is part of the Equity Specialty category has delivered around 5.5 per cent compared to the category's 18 per cent loss during the same period. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The fund's good returns can be attributed more to the fact that the gold prices have peaked to a 30-year high, resulting in a bonanza for the companies in this field. Not surprisingly, many investors have flocked to this fund.
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The fund's assets under management, which stood at Rs 692 crore in September 2007, have almost tripled to over Rs 1,600 crore in March 2007. A weakening US dollar and an unprecedented rise in oil prices have also made gold an attractive investment avenue. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FUNDS ON LIQUID DIET! Once overweight on equities and neutral on cash, mutual funds seem to have reversed that position. Welcome to the new world of cash stash! | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| A look at the equity portfolios of March 2008 reveals that funds are on a strict liquid diet. As on March 31, Sundaram BNP Paribas Capex had 30 per cent of its assets in cash, followed by LICMF Growth with 29.47 per cent. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The cash position of these two schemes during the peak of bull run (January 2008) was 9 per cent for LICMF Growth and 7 per cent for that of Sundaram BNP Paribas Capex. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| As on March 2008, diversified equity funds were sitting on a cash pile of Rs 7,859 crore, as against Rs 4,773 crore in January 2008. A total of 108 funds increased their cash allocation expressed as percentage of net assets, while 33 saw a decline. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All in all, cash available with the fund houses in March increased to Rs 7,859 crore (8.64 per cent of the total assets) from Rs 4,773 crore in January (4.46 per cent of total assets). | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| While sitting on cash protects the investor from a sharp downfall, it also implies that you miss out on sudden upward spurt; a phenomenon which has now become a part and parcel of Indian equity markets. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| * We are only referring to the cash positions of diversified equity funds. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Don't miss the most important news and views of the day. Get them on our Telegram channel
First Published: Apr 20 2008 | 12:00 AM IST