Most of the top rated funds, many of which gave a yearly average return of greater than 23%, are hitting 52 week lows right now. Only 2 of the top 10 funds across categories have managed to hold on to positions in the top 10 over the last one month. These were, UTI Gold Traded Exchange Fund and Gold BaES Fund.
Let us look at the top 10 funds across all categories over the last 1 year:
Now let us now look at top 10 funds across all categories over the past one month:
The benchmark Sensex has shed over 21% in the past one month and the Midcap index has eroded by 23.94%. The aftermath of this is very well visible in the form of over 80% of the listed 300+ equity funds hitting their 52 week lows, most of them with negative returns. On the other hand, Gold Funds and Gilt Funds have managed to hold on to decent NAVs even amidst the bloodbath over the past one month.
What is astonishing is that 4 of the top 10 funds currently are Gold Traded funds which have over 99.85% of their net assets invested in gold. Less than 0.15% of their net assets are invested in the form of current assets. Gold prices have risen by over 6% over the past one month.
The GILT funds are those that invest in Government Securities. Most of the top performing GILT funds have invested about 70% of their net assets in the GOI 2015 Sovereign Security and the balance 30% is a combination of GOI Sovereigns maturing in 2027 or 2012.
Amongst Gold funds, the one with a mixed bag approach is the DSP Merrill Lynch World Gold Fund-Growth. 98% of its net assets are invested in another fund managed by Merrill Lynch (DSP Merrill Lynch International Investments Fund - World Gold Fund). The remaining 2% is in the form of money market instruments to CBLO and another self managed fund by Merrill Lynch.
IDFC Fixed Maturity Arbitrage Fund-S1-Plan A-Growth floats with the highest risk carried. It has 66.67% of the investments in the form of equity, 18.33% Bank Deposits, 9.97% Money Market Instruments, 4.34% Current Assets and is sitting on 0.7% Cash. The top holding for most equity funds in the top 10 seemed to be stocks from the TATA group of companies.
Kotak on the other hand has over 87% of its net assets invested in the form of bonds with State Bank of India and State Bank of Hyderabad. The remainder is in the form of Current Deposits with ICICI Bank.
What is becoming interestingly clear now is that with the markets not far from hitting sub 12000 levels and a very thin possibility of the index closing near 18000 by the end of the year, investors will have to learn to live with 11% or less average annual returns on most schemes and be satisfied with them. The so called bull run is far off the chart, keeping in mind that the Indian economy is not a strong exporter of commodities and in-fact imports 5% of its GDP in the form of Crude Oil. The safest bet for the medium run seems to be the more conservative funds.
5 comments:
hey,
its true that most equity funds have hit their all time lows on 26 June 2008. Most fund houses have agreed upon the fact that they have seen far less inflows in equity funds in the months of May and June 2008(ET). But at the same time, equity funds havent faced huge redemption pressures. Those who are already invested have held on to their investments.
Since the scenario in equity funds is not very encouraging, yet it doesnt automatically prove debt and conservative funds to be the obvious next choice. Debt funds are not advisable when the macro-economy is not stable with problems like Inflation and the resultant RBI measures to curb it in form of Interest rate hike or CRR hike. The hike in interest rate leads to a fall in prices of debt securities and an increase in yields as the two are negatively co-related. This gives higher yield to a new investor, but reduces the value of existing debt portfolio. Also as inflation eats into the returns of debt, the prices of funds go further down as investors expect higher yields.
Non- government bonds also carry a significant default risk in times of liquidity tightening measures undertaken by RBI to curb inflation
Thus with market running low on sentiments and debt funds being less advisable due to macro-economic concerns, investors in the current scenario are considering Structured Products as an alternative. These products invest in equities through debt. They protect the capital for 18 months or so, and than the benefits of equities can be reaped it inflation and other factors are under control. These products are estimated to have 25% upside potential and 10% downside risk.
Thus when market is low on sentiments, yet India has a positive growth story, this is the way investors can invest.
thats right meghal...the negative correlation is true...but this is the exact reason why the top performing debt funds have an arbitrage element...like the one by IDFC. the objective is to gain more than the ten year bond would ideally give you. that would be the minimum benchmark, and at a time like this when equity funds have eroded 16 month gains, logic dictates to have a well spread basket of investments rather then having an equity oriented approach. A study by ADIA shows that during periods when equity funds bleed, gold funds and debt funds outperform the markets. this happened in 1992 and also in 2000 during the dot com bubble burst.
hey,
ya it is always advisable to have a well-diversified portfolio. Many investors who have huge amounts to invest first put their entire investment amount in a Balanced fund or a Debt oriented fund and then switch amounts in part to selected equity funds ar regular intervals. This gives a twin benefit of interest-rate beating returns from debt and the advantage of spreading risk over a period of time to different equity funds. In fact some people that i talked to during my internship and who have had more than a decade experience in investment advisory say that intelligent investors drift towards debt when equity is on a high. they reap benefits of equity till a certain point and put it all into debt then.
Here i would also like to mention that Gold funds ( which invest in gold mining companies) are just 2 in number so far. One is DSPML WGF and another AIG Gold fund that was lauched just 2 months back and hence doesnt yet have a significant track record. but DSPML WGF is the only equity fund that is giving positive returns at present. It has given an awesome 70% return since lauch. Gold ETFs are different. They invest in physical gold and track that index.It is estimated that if the price of Gold goes up by 'x', then the value of a gold mining stock goes up by atleast '2x'.
In times when inflation is a major concern and the manufacturing sector being hit by rising crude prices and higher PLRs, it is being advised to invest in stocks or funds that invest in stocks of companies engaged in the exploration or mining sectors as while these companies are not affected by the rising raw material prices, they can sell their produce at higher rates in times of increasing prices.
,
n ya the DSPML World Gold Fund has been lauched in India in August 2007, although the International fund exists for 13 years now. so may be what you have talked about are Gold ETFs ( Gold Exchange Traded Funds) .these are different from Gold funds, as i mentioned earlier, there are just 2 Gold funds and both are new yet. thanx...
meghal thanks so much for the awsome feedback. I do know that Gold ETFs are difefrent than Gold funds. The expression was just for a lingo. And i agree that its the best decision to invest in exploring companies. Example is Selan Exploration limited which has appreciated by more than a 100% in the past couple of months. It happens to be one of my favourite picks.
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