Commentary:
1. How this table is useful?
By focusing on the top 50 funds based on last 1M return, it is possible to identify consistent performers across all the timelines till 1Y, which are more suitable for fresh investments, as they are keeping up with the market dynamics.
The funds that were in top 50 as on 28 days back, but not any more are marked in Red at the end. In this, one would still see consistent performers, but with 1M Return lower than the top 50 through this period. It is possible that some of these will return to Top 50 again ahead.
The concept here is that, by sticking to consistent performers across all the timelines from 1W thru 1Y for fresh investments, it is possible that our investment returns in the portfolio will be better than average, as we will be doing far more justice against the trap of "past performance is not an indication of future performance". By ensuring consistent performance across all timelines till 1Y, we will minimize falling into the trap of one time darlings, who otherwise underperform after initial shining. For example, the very first row in this report, Mirae Asset Hang Seng TECH ETF is a way underperformer for 3M, 6M, 1Y timelines, hence wont make it to our investment decisions in spite of greater performance thru 1M and 1W time periods.
Since this report is produced on a weekly basis, one gets four chances to hang on to the consistent performers, so a good fund missing for a week, can re appear ahead, and be considered again for fresh investments.
So the game here is to improve the portfolio level return at least to the 50% of the return of top performing fund. In this report, top 1Y performing fund has given 106%, so our self esteem needs to be tuned to expect 53% return thru market dynamics ahead, which can not be guaranteed, but the portfolio management attention will improve. Beyond this report, one needs to make Hold and Sell decisions, again these dynamic benchmarks will help there too.
For example, if the 1Y benchmark is 53%, I may still hold on to a fund which has given only 25% through the year, but may sell of a fund which has only 15% return, even at the risk of additional 5% taxation, as I may be confident to achieve more than 20% return with the freed up money thru fresh investments ahead based on anticipated market dynamics.
So, when it comes to the portfolio management, the benchmarks for Sell decisions need to have far more tolerance, and need to account for potential corrections and taxation, and ability of the underperforming fund to withstand such corrections too.
At the portfolio management level, Hold decisions are the easiest, as one needs to do nothing.
But, one significant change here is that we hope to cling on to the top performers among consistent performers, and hence increase our portfolio returns than passive SIP investments to a fund which had a past glory and has not done well recently. The counter to this could be that a Momentum based buy decision could lead to significant correction ahead, but by ensuring consistent performance across multiple timelines, we minimize this risk.
2. Key further refinements through this week report:
- Since market has become volatile, though the focus is 1M return, 1W return column is reintroduced, in order to assess whether the past glory of performance is already waning through last 1W, or the new heroes are emerging in the 1M list based on the potential last 1W flash in the pan peformance.
- Since the market is volatile, the arrogance of looking at only the equity and hybrid funds is now mended to include all types of funds. What this means is that if the debt and commodity funds are in a position to beat equity and hybrid funds in 1M performance, they will pop up in the list going forward.
- The top 50 average returns for various timelines for this period reporting will serve as the minimum benchmark, instead of my own heuristic judgemental benchamaks. These averages are shown at the end. This way, I do not have the burden to tweak my own judgemental benchmarks as the market dynamics change ahead.
-The top 50 average returns for various timelines 28 days back are also shown. This way, we can appreciate how these benchmarks are changing to higher or lower based on market dynamics.
- The two averages that are marked in grey at the end, are the 1M return averages 28 days back, first one is 28 days back to March 1, and second one is 28 days back to Feb 3.
3. Since market is being volatile and may lead to significant correction ahead through March, for fresh investments, I have decided to make the criteria bit more stringent, which is that the returns in all timelines including the 1W window need to be higher than or equal to the top 50 average. Such returns are marked in Bold. As per this criteria, this week, I would consider only the Quant Infrastructure Fund for fresh investments.
Further observations:
4. This analysis is based on Value Research dat download. It has become clear that Value Research data can be erroneous, maily due to omission of certain funds. For example, the funds with no 1M return as on 28 days back are the ones missing in the report then. Similarly, the some of the funds falling off the top 50 are missing this time in the Value Research data, hence are not being shown here.
5. Though March 2 Saturday is a trading day, decision is to include that data as part of the next week report. This is different treatment than last time around, where the Saturday data was included for the same week. Decision to keep the weekly boundaries to Friday going forward.
6. You may notice that the 6M and 1Y average of top 50 funds as on 28 days back were way lower than the ones in this period. 14.23 Vs 33.45 for 6M, 28.89 Vs. 59.19 for 1Y. What this means is that in the report 28 days back, too many funds with lower returns for 6M and 1Y popped into Top 50, and better consistent performers through 6M and 1Y period have returned thru this report. One may notice that though there has been a considerable correction through this week, the averages of top 50 for different timelines are still healthy. So, we can now observe how the market dynamics alter our own consistent performance benchmarks for investment decisions. This is a good point to be included in the report such that on corrections, we may get negative returns as average, and we can assess the departure of these averages from the ideal averages when the market was hot in the past.
7. You may also notice that Quant family has fallen from the grace of having highest number of funds in the Top 50. It is ICICI Prudential this time with 6, followed by Mirae and Nippon with 5 each. Quant has only 4. What this may indicate is that Quant funds may be underpeformers when the market turns corrective. Need further validation though.
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