Who scores on consistency

Parvatha Vardhini C. | Updated on October 19, 2013

Banking sector has been favoured and shunned in turn.

Like any other season, 2013 so far has some winners and losers among equity funds. But do the funds that regularly figure on our list of recommended funds make the cut?

Rest assured — funds such as ICICI Pru Focused Bluechip, Birla Sunlife Frontline Equity, UTI Equity, UTI Opportunities and Franklin Bluechip have all fared better than the broader markets. Focused Bluechip and Frontline Equity have done better than the Nifty as well.

Although they may not be in the top ten in this round, these funds score on the consistency parameter. For a five-year period, they have clocked better returns than their benchmarks 80-93 per cent of the time.

This implies that if you invested in these funds at any point in time in the last five years, it had an 80-93 per cent chance of beating the index.

Taking into account their dependable track record, their ability to contain losses during market falls while and doing well in rallies, these funds can continue to be part of your core portfolio.

That cannot yet be said of funds that have topped this season. Axis Equity has done well so far no doubt, but it is a relatively new fund, launched only in December 2009.

BNP Paribas and Religare Equity too don’t score well on consistency, with five-year rolling returns showing that they won only 60-65 per cent of the time.

Win some, lose some

Other favourites, such as HDFC Top 200, HDFC Equity, ICICI Pru Discovery, IDFC Premier Equity and HDFC Mid-cap Opportunities have failed to beat the BSE/CNX 500 indices.

The last three being mid-cap funds, the markets have been anything but kind to them.

However, considering the correction in mid-cap valuations since the beginning of this year, it may not be a bad idea to take exposure to beaten down mid-cap funds with consistent track record and quality stocks.

Again, on the consistency parameter, Pru Discovery and Premier Equity pass the test, with five-year rolling returns showing them to be toppers 93-95 per cent of the time.

Pru Discovery, with a value bias, particularly suits those investors with a long-term perspective. With 24 per cent returns over the last five years, the fund is the top performer in the diversified category during this period.

These two funds make for good picks in the mid-cap space for your portfolio, more than any others.

What explains the 11-14 per cent loss by HDFC Top 200, a top notch large-cap fund is its tendency to adopt a buy and hold strategy, without much churn to the portfolio.

In the last few months, the heavy tilt towards the banking and financial services space and reduced exposure to sectors, such as pharma and FMCG, due to high valuations has affected performance. Short-term returns of these funds may suffer due to the above mentioned reasons.

But HDFC Top 200 boasts a 10-year rolling return record of beating the market 80 per cent of the time. With track-record doing the talking, existing investors can hold on to their units.

Some sector-focussed funds have outperformed markets by a huge margin. But such funds, be it banking, FMCG or Shariah-based, are best avoided as it is difficult to second guess the markets.

The banking sector has been hugged and shunned by the markets in alternate years, beginning 2010; FMCG funds have showed superlative performance in the last two-three years, but with valuations sky-rocketing, they may offer limited scope for upside from here on. Unless you have a high risk appetite and track market moods closely, such funds may whittle down your returns over the long term.

Published on October 19, 2013

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