Worst Performing Quarter for Mutual funds

Tuesday, April 08, 2008 | | |

MUMBAI: It could probably be the worst-performing quarter for mutual funds in India over a decade. A glance at the return profile of mutual funds for the January-March quarter shows that almost the entire gamut of equity, sectoral, thematic and offshore investment funds have yielded negative returns.

Amid turbulent market conditions since late January, net asset values of individual equity funds have fallen 20-55%. Sector funds investing in IT, pharma and infrastructure are down in the range of 18-45%.

Even contrarian calls have gone wrong with most contra funds logging losses in the range of 30 to 36%. Only 35 out of 280-odd equity funds managed to outperform their benchmark indices. The only bright spot, solely by virtue of lower losses, have been those funds investing overseas economies (international/offshore funds), which have fallen 8-18%.

In an email response to ET, Value Research CEO Dhirendra Kumar said, “Of the small number of funds that beat the benchmarks handsomely, a majority are those that also invest abroad. Though some international funds lost investors’ money, they lost lot less than domestically-focused funds. This demonstrates the value of true diversification in bad times.”

According to Mr Kumar, among sector-specific fund categories, the small FMCG and pharma categories did less worse than mainstream funds, losing an average 16.7% and 18.9% respectively. The DSPML World Gold Fund, which invests not in gold but in stocks of companies that are part of the global gold mining and refining industry, did fairly well during the considered period.

According to market sources, fund managers adopted short-term trading techniques to maintain their portfolio values. In normal corrective phases, fund managers steer their portfolios away from taking big hits by investing in a mix of shares of diverse sectors.

This helps them to compensate any loss of value with appreciation in the other shares. But this time round, the correction has been so all pervasive that fund managers are not left with many choices, but to time the market in order to improve their returns. If one goes by net industry assets under management, volatile markets have shaved 6% off assets under management