Equity mutual funds ride the bull wave, beat benchmarks

Frustrated that the stocks in your portfolio aren’t moving at all while the Nifty hits new highs in the market surge? You would not have had this experience had you invested your money in mutual funds.

Making a big dramatic comeback, diversified equity mutual funds have performed extremely well over the last year. Indeed, more than three-fourths of all equity funds, across categories, beat the Nifty, Sensex and other benchmarks.

Large-cap funds, which invest predominantly in bluechip stocks, were by far the best of the lot, with 84 per cent of them outperforming their benchmark, the Nifty.

In the multi-cap and mid-cap spaces, 75 and 78 per cent of the funds outperformed their benchmarks, the CNX 500 and CNX Mid-cap index, respectively.

With mid-cap stocks leading the rally in the past one year, mid-cap oriented funds delivered the best return, averaging 92.9 per cent, leaving the CNX mid-cap behind by 20 percentage points.

Multi-cap funds, which invest in a blend of large, as well as mid-cap stocks, averaged 62.5 per cent. Play-it-safe large-cap funds delivered a healthy 55.1 per cent.

So, mutual fund investors who had picked the top schemes will be sitting pretty as these schemes outperformed the benchmarks by 10-20 percentage points . The top schemes in each of the three categories have delivered twice the returns from their benchmarks.

So, what helped the best equity funds shoot to the top? The higher the proportion of mid-cap stocks in the portfolio, the better the return picture for a scheme. Funds that bet early on in sectors such as auto, capital goods, oil and gas, as well as contrarian ones such as chemicals and power, made the most of the rally. Increased exposure to beaten down PSU stocks has given a huge leg-up to some funds after the elections.

It also helped that this time around the markets didn’t make large single-day gains after the elections results were out, as in May 2009. Last time around, fund managers had built up significant cash positions, worrying about an adverse result. But this time, funds mostly remained invested.

What’s more, the market’s post-election movement has been steady. This helped fund managers shuffle their portfolios to ride the uptrend.

In 2009, on two successive days, the Sensex and the Nifty touched the upper circuit, leaving many funds stranded as they were under-invested or had put money in the wrong sectors.