The Hindu Business Line : How diversified funds handled a yo-yoing market

The one-year returns of diversified equity funds are beginning to sparkle again as performance charts capture the euphoric recovery funds have made since their June 14, 2006 lows.

For those who invested at the May 2006 peak, however, the return scorecard over the last 13 months may not look as attractive.

Sample this. The average return of diversified equity funds between the May peak and now is about 10 per cent. But the average return from the June lows of 2006 is at a whopping 56 per cent.

An analysis of returns from May 10, 2006 till date reveals that some of the recently launched diversified funds, PruICICI Service Industries, PruICICI Infrastructure and DBS Chola Opportunities, did better than funds with an established track record.

Aggressive management styles paid off the past year. Most funds suffered a huge erosion in their net asset values in the May-June period, when the Sensex shed 29 per cent and the BSE Mid-Cap and Small-Cap indices a steeper 40 per cent, giving the lie to the argument that diversified funds protect downside risk.

Taurus Discovery Stock Fund, with a small asset base of Rs 18 crore, took the worst knock, falling 44 per cent during the one-month period, followed by Taurus Starshare and Franklin India Opportunities, which plummeted 40 per cent and 38 per cent respectively.

Even some of the large-cap funds, such as Franklin India Bluechip Fund, HDFC Top 200, Reliance Vision and DSPML Equity Fund, shed 30-33 per cent.

However, on the bright side, some funds, such as JM Basic, made such a dramatic comeback since the 2006 lows, the latter figuring among the top 10 funds even when reckoned from the May peak.

That kind of recovery was not visible in large-cap funds, however.

This is because mid-cap performance began to pick up in the later months of 2006, with the mid-cap and small-cap indices outperforming the Sensex over a one-year period by a small margin.

Funds such as JM Basic, ICICI Pru Services Industries and DBS Chola Opportunities, which are among the top ten over a one-year period, also rank high when their performance is compared from the peak of May 2006 till date.

Funds that have still not recovered from the May 2006 peak include JM Emerging Leaders, DBS Chola Global, UTI Master Value and Sundaram S.M.I.L.E.

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