The Hindu Business Line : The ICRA Online Mutual Fund Rankings 2005

INVESTORS in equity found appreciation in calendar year 2004 both because of the bullish trend in the market and the superior performance of the fund managers in picking up the right stocks.

With market performance being a variable not quite within the control of the individual investor, the importance of identifying the right fund manager can hardly be overemphasised.

The importance, in fact, is all the more acute given the expectations built up by the funds' performance for the quarter till December 31, 2004 — asymptotic average absolute return of 20 per cent by equity funds and 14 per cent by balanced funds, with the top performer among the equity and balanced funds posting over 40 per cent and 20 per cent in absolute returns, respectively.

For the ICRA Online Annual Mutual Fund Awards, ICRA Online analyses all eligible schemes to determine their category-wise relative performance using the methodology it has developed jointly with ICRA Ltd.

Following the ranking, gold awards are given to the top performer in each of the categories, while silver awards are given to other schemes ranked ICRA MFR1, depicting performance within the top 10 per cent of the category.

For the ICRA Online Annual Mutual Fund Awards 2005, the eligible schemes were analysed for their performance over one- and three-year horizons till December 31, 2004.

The analysis was based on various parameters after the schemes were categorised on the basis of their investment style and stated objective. The performance and suitability for investment were judged considering attributes such as fund size, average maturity, liquidity, portfolio turnover, and portfolio diversification.

One-year horizon

The equity schemes were classified into aggressive and defensive according to the style analysis done for the one-year and three-year horizons. In the one-year Diversified Equity Fund — Aggressive category, of the three funds that were judged ICRA MFR1, two were from SBI Mutual Fund. SBI Magnum Global Fund 94 came at the top followed by SBI Magnum Sector Umbrella - Contra and UTI Dynamic Equity Fund. Both the SBI schemes posted around 32 per cent return for the quarter ended December 2004.

The Magnum Global Fund has shown greater affinity for the electrical and electrical equipment sector whereas the Contra Fund focuses more on the infrastructure sector.

UTI Dynamic, which posted a return of 29 per cent for the quarter mentioned, has mainly focussed on the cement and power sectors. Among the Diversified Equity — Defensive funds, HSBC Equity once again emerged the topper.

The scheme has been a consistent winner and was in the ICRA MFR1 category the previous year as well. Reliance Growth also maintained the momentum of the previous quarter and retained its ICRA MFR1 rank.

The new inclusions in the ICRA MFR1 spot this time are Alliance Equity and DSP ML Opportunities Fund. Alliance Equity has fared well in terms of portfolio turnover, besides risk adjusted return, though diversification across companies has been below average. DSP ML has not been very high in terms of risk-adjusted return, but has performed very well in terms of portfolio diversification across companies.

Three-year horizon

For the three-year ranking horizon, among Equity Diversified - Aggressive funds, two schemes were ranked ICRA MFR1 — at the top position was Alliance Basic Industries, followed by SBI Magnum Contra. Alliance Basic generated over 25 per cent return for the quarter ended December 2004, and maintains almost 36 per cent exposure in the oil, gas and petroleum sector. It has successfully been able to contain volatility and yielded consistent return.

Among Equity Diversifie - Defensive funds, three schemes were ranked ICRA MFR1. Franklin India Prima retained its position at ICRA MFR1, followed by Reliance Growth and Reliance Vision, both from the Reliance stable. Franklin had the highest exposure to the auto and ancillary sector and posted 29 per cent return in the quarter mentioned.

Reliance Vision posted a 19 per cent return in the quarter to December 2004 and managed a 5 per cent increase in corpus. It also had the highest exposure to the auto and ancillary sector.

In the balanced fund category, there were 18 schemes qualifying for the one-year ranking, and 14 for the three-year ranking. SBI Magnum Balanced Fund notched the top position for the one-year horizon, while HDFC Prudence, apart from achieving ICRA MFR1 in the one-year bracket, was also adjudged the best in the three-year bracket. SBI had 68 per cent of its assets allocated to equity, showing high affinity to technology stocks. It managed to yield a 23 per cent return.

HDFC Prudence, again a consistent performer, had a 64 per cent equity exposure and a 33 per cent debt exposure. This scheme posted a 16 per cent return for the quarter to December 2004 and reported an almost 11 per cent increase in corpus.

Index schemes were ranked only for the one-year period because of the insufficient number of schemes in the three-year bracket.

UTI Nifty came on top this time in this category, moving up from the ICRA MFR2 spot of last time, among the nine schemes considered. Being a passively managed scheme, it was judged the best for minimising tracking error. While Nifty posted a 19 per cent return for the quarter to December 2004, UTI Nifty fund returned 18.9 per cent.

Among Technology schemes, DSP ML Technology.com Fund emerged on top this time in the one-year bracket, while Birla India Opportunities Fund retained its ICRA MFR1 position in the three-year bracket. DSP ML Technology posted a 15 per cent return and managed to raise its corpus by 19 per cent in the quarter to December 2004.

This scheme managed a fairly steady growth in its corpus and had exposure to companies such as TCS and Infosys. Birla India Opportunities — earlier called Birla IT Fund — posted a 14 per cent return for the quarter mentioned, but contained its volatility significantly. The fund house has been trying to portray this scheme as a diversified scheme but its style of management judged over a longer timeframe still resembles that of a technology sector fund.

Among tax planning schemes, 14 schemes qualified for ranking in the one-year bracket and 12 for the three-year bracket. SBI Mutual fund was again at the top with SBI Magnum Tax Gain 93. The scheme posted a 34 per cent return and a 20 per cent increase in corpus during the quarter to December 2004. In the three-year bracket, HDFC Long Term Advantage maintained its ICRA MFR1 spot.

In the MIP category, of the 17 schemes that qualified for the one-year ranking, HDFC MIP - LTP and FT India MIP Plan managed to make it to the top.

The equity exposure of both these funds was close to 20 per cent. HDFC had the highest allocation in the banking sector. The corpus of both the schemes fell by 20 per cent. In the three-year bracket, Alliance MIP was at the top, and kept 15 per cent of its corpus in equity (according to the latest fact-sheet available). It managed to contain volatility in its net asset value (NAV) although under consistent redemption pressure, and its scheme kept falling steadily throughout the quarter to December 2004. It had the highest exposure in finance companies in this sector. In the equity segment, it had the highest exposure in the oil, gas and petroleum sector.

In liquids, 26 schemes qualified for ranking in the one-year bracket, and 20 in the three-year bracket. LIC MF Liquid Fund, Sahara Liquid and Templeton India TMA came out on top.

The average maturity of the LIC scheme reduced from 117 days in the previous quarter to 43.3 days in the quarter to December 2004. For Sahara too, it came down from 78 to 69 days, reflecting its call on further strengthening of interest rates.

In contrast, Templeton increased the average maturity from 87 days in the previous quarter to 128 days in the quarter to December 2005. All the three had witnessed a fall in corpus but the decline was the highest for Templeton (around 26 per cent). Templeton India TMA also reached the top position in the three-year bracket with ING Vysya Liquid Fund at the second position.

ING Vysya Liquid Fund has been a consistent performer and reduced its average maturity from 87 days to 71 days in the quarter to December 2004. This scheme also witnessed a decline of 17 per cent in its corpus in the quarter mentioned.

The debt short-term category was only analysed for the one-year period because of insufficiency of numbers in the three-year bracket.

Of the 24 schemes analysed, Principal Income Fund STP and Prudential ICICI STP were the winners. The average maturity for the principal scheme came down from 1.09 years to 0.8 years. For Prudential, it increased from 1.18 to 1.44 years depicting its bullish view on interest rates.

The debt long-term category had 32 schemes in the one-year bracket and 22 in the three-year bracket. Tata Dynamic Bond Fund, Reliance Income Retail and Deutsche DBF made it to the top in the one-year bracket. Deutsche, among the three, posted the highest return. Tata had an average maturity of 0.41 years, while Reliance's was 2.64 years and Deutsche, 2.55 years.

For the three-year horizon, Kotak Bond Deposit and Birla Income Plus made it to the top spot. Birla had an average maturity of 2.85 years and Kotak 3.91 years, but it gave a healthy 6 per cent return.

In the gilt sector, in the one-year bracket, Reliance G-Sec LTP and Templeton India GSF LTP were at the ICRA MFR1 position. Reliance reported a large increase in its corpus in the quarter to December 2004. Also, its average maturity increased from 2.86 years to 3.9 years. The average maturity also increased from 4.45 years to 5.28 years in the case of Templeton, and the corpus had a steady fall throughout the period.

In the three-year bracket, of the 16 schemes, Tata Gilt Securities Fund and Templeton India GSF LTP came out on top. The average maturity of Tata fell from 4.11 to 3.28 years.

Franklin Templeton has won the maximum number of awards — six. The other fund houses with a large number of funds among rank-holders are Reliance Mutual Fund and SBI Mutual Fund — they won five awards each. SBI's performance is all the more significant, given that the fund house has been low profile, notwithstanding its consistent hard work on the performance front.

(Source: ICRA Online.)

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