The Hindu Business Line : Hoping for better fund managers in 2007

Good fund managers are not made in classrooms, goes the famous saying. Never in the history of the Indian asset management industry was this apparently bland statement of greater import than now. If developments that took place in the past year had separated the men from the boys in the world of fund management, the New Year is all set to render the gap between the good and the not-so-good even wider.

Performance chart

Before we move further into territory that is slightly unfamiliar, let's quickly walk you through a few well-known figures, gleaned from last year's performance tables. Diversified, actively-managed equity funds gave 31 per cent (as on December 21) over a 12-month period, a feat surpassed by index funds which provided roughly 36 per cent. And if you had invested in technology funds, these would have given you an average 40 per cent at the end of the same period. Those numbers, of course, are just averages.

In the diversified category, the better performing funds gave you 50 per cent and more. The more pedestrian funds delivered 15 per cent and worse. Thrown in between are a large number of funds, which are neither here nor there in terms of performance. In other words, these occupy the middle ground, with scores ranging between 25 per cent and 45 per cent.

The point is this fairly wide gap between the two extremes is something that investors need to think about. The fact that some funds have done rather poorly in a good year (compared to their more well-off counterparts) should make them extra careful the next time they choose. And it was a good year indeed!

The growth in GDP did not give any major reason to complain, corporate profits were healthy, sentiments were strong... all of this was reflected in the indices.

Debt funds

We are of course being one-sided, restricting ourselves too much to equity, that too considering only a short, one-year period. What is happening to the world of debt funds? While several categories of debt funds have in the recent past lost their appeal, are we (in our eagerness to chase equities) losing sight of the fact that debt fund managers are here in full force as well? The fact is that a significant part of the activity on this front is related to shorter term products. Not much variation there in performance, you would argue.

We are also not referring to sector funds at this juncture. Tech funds, to repeat a point, delivered 40 per cent, the highest score in the sector funds space. The other categories of sectoral products - especially pharma, auto and banking - were not so fortunate. These dished out between 11.5 per cent and 15.5 per over a one-year period ending December 21. It needs to be mentioned here that not all investors have the nerve to allocate to such funds in normal times, given their narrow investment universe.

Whether they are exposed to equity funds or to debt, experienced investors will identify and punish sub-standard performance. Poor performers will simply not attract fresh money; on the other hand, their asset bases will shrink. In the long run, the lousy performers will be whined about and scoffed at.

The very fact that these have not met expectations will be a talking point at investors' meets, conferences and cocktail parties.

Feedback may be sent to nilanjan@thehindu.co.in

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