Equity funds, on an average, lost 16.5 per cent in value in 2011 (returns as on December 12, 2011). So they made for a poor investment this year, with the stock markets falling sharply — and with them, the value of their portfolios.
The only solace for investors is that fund managers did a fair job of containing the losses to their net asset value (NAV), compared with the index. Nine out of every ten equity funds reported a lower fall in NAV than the index over the past year. The BSE 500 index registered a 22 per cent fall in 2011.
Funds' performance against bellwether Sensex was also quite reasonable. This year, of the 312 equity funds with a track record of over one year, 219 (or seven out of ten), beat the Sensex.
Choose well, do well
The choice of sector and theme funds and the investment strategies of diversified funds were some of the key differentiators in the funds' performance. With FMCG and pharma stocks doing reasonably well this year, funds that focussed on these sectors topped the performance charts.
Among the top performers for the year — a motley mix of sector, theme and diversified equity funds — were ICICI Pru FMCG, Magnum FMCG, Magnum Emerging Businesses, UTI MNC and Wealth Builder funds, to name a few. Notably, pharma funds such as Magnum Pharma, Reliance Pharma and UTI Pharma also managed to contain their losses way better than BSE 500.
In contrast, the unifying theme among the worst performers was infrastructure, with funds such as Escorts Power & Energy Fund, HSBC Small Cap Fund, Reliance Infrastructure, Reliance Diversified Power and Sundaram Capex Opportunities failing to restrict significant NAV losses.
But could you have bettered your chances by picking funds with a longer record? Probably, as three out of every four funds (202 funds) with a track record of three years and above and three in five funds (112 funds) with over a five-year track record bettered the BSE 500 index this year.
Here's a quick look at the themes and funds that stood the test of the market in 2011 and the ones that didn't.
Dividends yield again
With the markets moving this way and that in either direction, you would have hit pay dirt had you opted for dividend yield funds. Funds such as Tata Dividend, BNP Paribas Dividend Yield, UTI Dividend, and ING Dividend Yield managed to do better than the BSE 500 over the year (returns ranging from negative 8 to negative 11 per cent).
But note that value-oriented funds, including the ones that focus on dividend yield stocks, have been among the best performing equity funds for three years now, ever since the stock market rally took wing in March 2009. While value-investing as a strategy delivered this year too, the margin of outperformance over the benchmark wasn't as significant. Case in point — funds such as UTI Master Value and Templeton India Growth managed to better the index, but by a narrow margin.
Large-cap divergence
While the usual consistent performers with a predominant large-cap focus — funds such as Franklin India Bluechip, HDFC Top 200, DSP BR Top 100 and Quantum Long-Term Equity — performed well this year too, not all funds that focussed on large caps shared a similar scorecard. Unlike the ‘dividend-yield' theme, your choice of funds here would have made a lot of difference.
For instance, while funds such as ICICI Pru Focussed Bluechip, BNP Paribas Equity, UTI Top 100, and Magnum Equity managed to deliver better than BSE 500, others such as SBI Blue Chip, Reliance Equity, Morgan Stanley Growth Fund and Principal Growth did not.
While there were cases of slippages in performance, majority of the large-cap focused funds that underperformed this year had remained poor performers in previous years too.
For instance, while Reliance Equity Fund had fared quite well in 2008, thanks to its derivative exposure, it couldn't quite match the pace of the rally in 2009 and has since remained a laggard.
Midcaps mixed
While large-cap funds typically have done better in volatile and corrective markets, this time around, even midcap funds managed to put up a reasonably decent show.
On an average, midcap funds capped their returns at about negative 16 per cent, way better than BSE Midcap as well as BSE 500.
Among the funds that delivered were Magnum Emerging Businesses, Magnum Global, HDFC Midcap Opportunities, IDFC premier Equity and Religare Mid Cap.
Magnum Emerging Business Fund topped the list. Its strategy to move away from interest-sensitive sectors such as auto and banks, and increasing exposure to consumer space seems to have propped up its performance.
Funds such as Sundaram Select Midcap and ICICI Pru Discovery continued to do well this year too, while the laggards include HSBC Midcap Equity, ICICI Pru Midcap, and L&T Midcap, to name a few.
Infrastructure down
Though infrastructure as an investment theme had been a multi-bagger in 2006 and 2007, it has failed to live up to its glorious past since then.
Of the 23 infrastructure funds with over a year's track record, only seven managed to better BSE 500 this year.
Of these, Canara Robeco Infrastructure was the only fund that managed to beat the index across one, three- and five-year time frames.
Reduced exposure to construction and metals in 2009, and increased allocation to sectors such as telecom, petroleum and banks helped the fund score across time frames.
Funds focussed on banking and financial services, a direct play on infrastructure and economic growth, put in a moderate performance, losing almost as much as the broader index.
Newer funds score
Interestingly, relatively new funds (with less than three years of track record) managed to put up a decent show this year.
Funds such as UTI Wealth Builder, Edelweiss Absolute Returns, Canara Robeco Large Cap+ and Mirae Asset Emerging Blue Chip restricted losses quite well.
While not having any ‘baggage' from the 2008 meltdown helped these funds fare well this year, there was no such ‘beginner's luck' for the new funds in the infrastructure space.
Reliance Infrastructure and Baroda Pioneer Infrastructure were the only two funds in the bottom 25 that did not have at least a three-year track record — their infrastructure bias got the better of them (or in this case, the worse).