The Hindu Business Line : Diversified funds fail to match the recent Sensex surge

THE latest rally in the stock market seems to have exposed the soft underbelly of an otherwise proud lot - fund managers. Many of them have been actually outclassed by leading indices, prompting investors to ask questions that are definitely uncomfortable for those who distribute mutual funds and provide advisory services.

The intense growth in the Sensex stocks saw the 30-share BSE benchmark defeating almost all the diversified equity funds that were on offer during the short period under consideration. The same applied to the 50-share Nifty of NSE, albeit in a more muted manner.

The phenomenon, as investment circles point out, has spanned all asset allocation styles that fund managers follow. Distributors grudgingly agree.

The cue that is taken up by SKP Securities, an intermediary in Kolkata, which even argues that many diversified schemes have under-performed during the entire advancement of the market from 6154 points on April 29 to 7154 on June 22.

So, have most fund managers been caught sleeping? Those like Mr Bobby Surendranath, V-P Equity, Standard Chartered MF, are of the view that investors should ideally not consider equity funds for such short periods. Trying to time their entry and exit in view of a surging market has its own perils, Mr Surendranath notes.

The question may be answered by way of an illustration, featuring the 16.1 per cent rise in the Sensex during the April 29-June 22; the Nifty recorded a 14.97-per cent increase.

An SKP Securities review of over 40 funds indicates that diversified schemes provided an average of only 8.73 per cent. Some of the better performers in this group are: Alliance Equity (12.97 per cent), Cholamandalam Growth (14.44 per cent), HDFC Top 200 (13.59 per cent) and Franklin India Bluechip (12.18 per cent).

At the other end of the spectrum are the likes of CanExpo (1.47 per cent), Canequity Diversified (3.28 per cent), Franklin India Prima (4.43 per cent) and HDFC Capital Builder (4.2 per cent).

The exceptional situation has strengthened the case for index-based investing, feels Mr Sanjiv Shah, ED of Benchmark MF, the fund house that specialises in exchange-traded products. "Investors should seriously consider inclusion of more index funds in their portfolios," he maintains, adding that it is important to choose passively-managed options with minimum tracking errors.

There is, as certain quarters feel, hope still left for active management. Another review, conducted about 10 days earlier (say, on June 15), would not have perhaps thrown up such a poor picture. "This shows how the current rally has been witnessed more in the BSE Sensex stocks rather than in the broad market. This also explains why most investors are not very happy, in spite of such a smart rise in the most common benchmark indices," is how the distributor has concluded.

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