Top 50 funds analysis based on last one month top return as on Feb 17 2024:
1. The Top 50 average monthly return this time is 11.65%, bit less than that of week before, which was 12.61%, which is an indication of mutual funds returns slowing down due to broader market slow down.
2. The current Top 50 average monthly return as on Jan 20th, which was 28 days before is 4.93%, where as the similar return of top 50 as on Jan 20th was 6.89%, which indicates significant churn out in top 50 funds as on now, both in terms of funds coming in and going out of the list. Similar numbers in last week report were 7.55% and 9.3%, which means there has been far more churn out in the top 50 list this week, when compared to last week report. As the broader market becomes volatile, the top 50 funds list also becomes volatile.
3. In order to make decisions for fresh investments, it is advised that one looks for consistent top performance across all timelines: 1M, 3M, 6M and 1Y. Such performances are highlighted with bold, so funds with all these columns bold are more favorable choices to invest. This consideration helps to skip the momentary entries of some funds in the list this week due to market vagaries, which otherwise can return to suboptimal performances later. Case in point are the rows marked red in the bottom, which are the funds falling out of top 50 list this time, but were in top 50 as on Jan 20th. Here too, some consistent performers can be found, while some of them can be identified as nonconsistent performers. Consistent performers overall have better chances to return to top 50 list more often in this weekly analysis.
4. Typical benchmark used for consistent performance is as follows:
a) 1 Month - Being in top 50 list (lowest this time is 8.8% return)
b) 3 Month - 20% return
c) 6 Month - 35% return
d) 12 Month - 60% return
One can see that, even among top 50 funds, the top return benchmarks on higher timeline tend to be saturating as follows:
1m*12 = 105.6%
3m*4 = 80%
6m*2 = 70%
1Y = 60%
This is inline with what actually happens with all mutual funds, due to the non consistent returns of all constituting scripts in a fund and the associated churn out of scripts within a fund over time.
5. It is hoped that, by considering consistent performers within the most recent top 50 funds for the fresh MF investments, one can aim better than average annual return for the fresh investments, which can be anywhere between approx. 30% minimum average for current market dynamics and the 60% 1Y return benchmark used here, and average of which is 45%. If the new MF investments can show better returns, then this effort is well worth. Regression analysis for confirming the same is pending, and can be considered six months down the road.
There are good examples from the current top 50 funds list, which indirectly prove this point
CPSE Fund - 1Y return = 108.05%
Various PSU funds - 1Y return more than 90%
Thus, by reading between the lines across various weekly reports, this top 50 funds analysis helps to reconfirm the consistent top performances of certain fund types over certain period, and helps one to make adjustments as needed. Typically, such variations in the last one year have been across small cap funds, mid cap funds, large and mid cap funds,flexi cap funds, value funds, sectoral funds like infrastructure, PSU, pharma, BFSI, IT. Also, certain fund house names shine better when such turns appear within fund types.
6. Quant fund house typically has more funds appearing in top 50 consistently, though such number this time has dwindled to 9 from 13 or so before. ICICI Prudential and Nippon tend to be throwing next best numbers in top 50 funds list consistently, though this time Motilal Oswal too has improved its count, after them. This observation helps as to which fund house to choose across top performing fund types. However some exceptions apply, for example, when it comes to PSU fund, SBI PSU fund has been as much a darling like the ICICI Prudential. This observation is more relevant for distributing new fund investments across different fund themes than putting into a same theme just because many appeared in top 50 list.
7. In summary, better returns can be expected by regularly investing on mutual funds, using both science and art, which tend to evolve and transform with the market dynamics.
8. Since I am hinting that one should aim 30-45% annual return from mutual fund investments (again, for current market dynamics which can change for better or worse mostly), it also means that one should stop playing with direct stock investments/trading if such a benchmark can not be beaten or one should look critically into the stock investment/trading game one has got going and catch up with the return benchmarks in their own game.
9. I have been investing in mutual funds for longer term game since last 7 months or so, and I do stock market trading for short term and intra day (Here my benchmark to beat is 200% annual return, 100% benchmark is being achieved so far, thanks to the favorable market dynamics than my talent). I am yet to start making long term stock investments as I am happy to stick to mutual funds for the same, as I am yet to develop the discipline of keeping the margins for longer term investments separate from that for short term and intra day trading. May be, after mastering my craft there, I will start long term stock investments towards beating the MF return benchmarks, much later. I tend to push the tax adjusted returns from my short term stock trading game into MF investments on a monthly basis, for which this top 50 funds analysis is quite useful. Thus, I am able to stop looking for external “tips” in all my investment and trading, rather use analysis and associated judgement call. While this weekly analysis suffices for MF investments of mine, a slew of regular fundamental and technical analysis is needed for any type of stocks trading, one should not even attempt stock trading without minimal mastery in both fundamental and technical analysis.
10. One can tap into all the noises around my analyses across MF and stock market trading at this whatsapp group (Other colleagues noises too will be here) :
https://chat.whatsapp.com/IuzkVAHgn1jJ20ZmB8m9Vz
11. One can expect a weekly separate blog on similar analysis every week, while it lasts.
Thank you,
Nataraja Upadhya
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