Investment Tool for Serious Mutual Fund Investors
EDITION II
Published this 7th day of July, 2009
Subscription: Rs 4,800 for 12 issues
THE BROAD VIEW
Income Funds –
Equity Funds – “The stakes are high. The odds of getting higher returns are low. But extreme higher returns on this low probability are possible. The risk to principal at this point may not justify the returns. What I mean is that both returns and the loss of principal can be extreme should mutual funds be bought at this stage”
- June 2009 Issue of “The Mutual Fund Review”
A 20-25% return in a 12 month period is very likely. Specially in Midcap funds. I usually don’t like sector funds but any fund heavily weighted in Infrastructure or Real Estate may be a beneficiary of a 30% plus return in a 12 month scenario
AGGRESSIVE STRATEGY
Objective: Maximizing returns
Risk to Principal: Depends on the markets. Low in down and out markets and in markets running on exceedingly strong momentum. High in “shaky” markets
Current Scenario:
“Risk is high and the odds of losing principal are high. These are “shaky” markets. Anything can “shake them down” pretty severely. If you are not in as yet, you may want to remain “nimble” (i.e. make an exit if you see a fall of 10% or more). If you are not in and can wait, then wait”
- “The Mutual Fund Review”, June 2009 Issue
Current Return Expectations:
Big Cap/Blue Chip Funds
+15%: 30%
+10%: 70%
Midcap Funds
+25% gain: 30%
+20% gain: 50%
+15% gain: 20%
Sector Funds: Infrastructure Funds
+30% gain: 30%
+25% gain 50%
+ 20% gain 20%
Current Risk Expectations:
Very high: 80%
Medium: 80%
Mutual Fund Plays:
I like the Templeton Blue Chip Fund. It’s a conservative play with good fund managers. But I don’t particularly like their size. It is difficult to beat the averages with such a large corpus size
CONSERVATIVE STRATEGY
Objective: Keep principal intact and try and get above 3 year FD rates with the ability to withdraw anytime
Risk to Principal: Usually very low in all kinds of markets. But then you settle for mediocre returns
Current Scenario:
I’d say it make sense to go with equity funds even if the strategy is conservative. I am not sure Bond funds or Income funds are a sure shot bet currently. The chances that we will have strong swings in interest rates (and the chances are rates will spike up sharply). This is not good for NAVs of bond/income funds. Fact is downside risk in equity seems low and the upside seems more than likely
Current Return expectations (On Income Funds):
15%: 20% (if you can wait and invest when rates on GILTs go to 9-10%)
10%: 30%
7%: 20%
5%: 30% (if you are invested or invest immediately)
Current Risk expectations:
High: 80% - Interest rates will most likely spike up and reduce NAVs in income funds
Low: 20%
Mutual Fund Plays:
Sundaram BNP Paribas Growth Fund
FUND REVIEW
Fund Name: SUNDARAM BNP PARIBAS GROWTH FUND
Rating: *** (out of 5 stars)
Who should buy: Conservative. Expect a return of around 10-15% and don’t expect the fund to outperform the market
The fund may be volatile though with about 21% in Financial Services. That’s a mighty big percentage given that no one knows where interest rates, foreign currencies etc are headed
Review
The fund has been around for over a decade and returned over 20% annually for 10 years. Not bad (compare that to a 14% return on the index for a 10 year period). So the pedigree is right. But the fund’s got a new fund manager since January 2008 and I am not particularly impressed by his choice of stocks. I am also uncomfortable with its almost 6% holding in ICICI Bank
The portfolio has about 40 stocks. Most stocks are “run of the mill” (i.e the usual suspects). Why would I not just buy the index? The chances that they will continue to beat the index is low
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