Mutual Fund Asset Class Returns 30Sep2023
(This
is for information purposes only. This should not be construed as a
recommendation or investment advice even though the author is a CFA Charterholder. Please consult your financial
adviser before taking any investment decision. Safe to assume the author has a vested
interest in stocks / investments discussed if any.)
(please see updates 04Oct2023 and 01Oct2023 at the end of the blog)
This is an update of an earlier blog
posted on 01Apr2023. Now, I present the data as at the end of 3oth of September, 2023. The data contain select categories of mutual funds in
India, numbering sixteen, from equity, debt and commodity (gold)
categories.
Table 1: Asset return matrix - annual returns (top to bottom returns in 2022) >
Table 1 below reveals:
> asset class returns are cyclical in nature
>
gold ETFs and credit risk funds (debt) did well in 2022, but so far in 2023
their returns are dull
>
equity small cap funds did badly in 2022; in 2023, they performed well giving
highest returns of 27 percent in 9 months of 2023, among the categories
selected for this analysis
>
equity flexi cap and equity mid cap funds did poorly in 2022, but their
performance has improved year-to-date (first nine months of 2023)
(the blog continues below)
-------------------
Related Blogs on Mutual Funds:
NSE Indices (Nifty 50, Nifty Next 50, Nifty 100 and Nifty 500) Comparison 31Dec2022
Who is Eating My Gold ETF Return?
-------------------
>
Year-to-date, performance of floater funds (debt) improved compared to 2021 and
2022; and so are liquid, arbitrage, Banking & PSU, corporate bond and gilt
funds
>
after generating mild returns in 2022, performance of multi asset allocation
improved considerably
>
it’s heartening to note that both equity and debt funds in general have done
well year-to-date
>
with three months left for 2023 to close, let us see whether equity and debt
funds continue their better performance
Please click on the image to view better >
The
above table 1 is presented below, with the same data, but in alphabetical order
>
Table
3: Asset return matrix - trailing returns (10-year returns top to bottom)
>
What
table 3 below reveals is:
> Small-cap
equity funds have provided best returns on a 10-year trailing returns basis,
though they have provided negative returns as a category in 2022, 2019 and 2018
> investors in
small-cap equity funds have to tolerate higher volatility and it’s in the
nature of equities to suffer from volatility of returns
> inflows into
small- and mid-cap equity funds have been very high in the past one year; going
forward, it would be better to be cautious on these funds for conservative
investors
> on a
10-year trailing basis, equity mid-cap and flexi cap funds too have provided
inflation-beating returns
> Gold,
arbitrage and equity international funds have provided poor returns on a
10-year trailing basis
> three-year
trailing returns for gilt, Banking & PSU, dynamic bond, corporate bond,
floater, liquid, arbitrage, gold and equity international funds are very poor;
failing even to match inflation
> the data may surprise you; fund categories
with less than 5 percent trailing 3-year CAGR returns are:
gilt,
Banking & PSU,
dynamic bond,
corporate bond,
gold,
liquid, and
arbitrage.
The above table 3
is presented below, with the same data, but in alphabetical order >
Please
click on the image to view better >
To understand better, it would be in the interest of investors to check fund returns, both on a trailing basis as well as annual returns -- by observing them closely, one could discern some useful patterns and insights.
Asset size of the fund categories is included in tables 3 and 4 to understand whether serious money is interested in a particular category.
Of course, fund size is a double-edged sword, in euphoric times, investors tend to flock to a particular category boosting asset size and this may prevent that category from future performance.
We have seen in 2003-2007 bull market, fund categories belonging to capital goods, real estate, infrastructure and industrial sector did extremely well -- but they provided pathetic returns for several years after the 2008 Global Financial Crisis (GFC).
Some categories of funds do well in some seasons and others in other seasons. The above categories are only a select few, investors may look at other categories if they are interested in furthering their knowledge.
The above blog is the first reference point for young and prospective investors to understand the cyclical nature of mutual fund returns.
- - -
P.S.: The following are added after the above blog was published on 01Oct2023:
Update 04Oct2023:
Here, forgot to add AUM (assets under management) of each fund category.
Total AUM of 13 categories analysed excluding gold & arbitrage is 11,85,200 crore out of total AUM (assets under management) of all debt funds of Rs 13,99,600 crore (as of 31Aug2023) -- so, 85 percent of all debt AUM delivered a trailing 3-year CAGR (compounded annual growth rate) of less than 5 percent!
For example, liquid funds' AUM is Rs 4.50 lakhs and they delivered a trailing 3-year CAGR of just 4.6 percent; money market with Rs 1.50 lakh AUM delivered only 4.8 percent CAGR and gilt funds with Rs 23,700 crore provided a return of just 4.0 percent CAGR.
This 85 percent of total AUM delivering less than 5 percent CAGR is staggering and a poor reflection on India's asset mismanagement companies (AMCs), though returns from debt funds are subject to market trends, interest rates, macro economy and manipulation by Govt of India and regulators, like, RBI and SEBI.
There are some nuances with this 85-percent number: these are aggregate numbers of individual debt mutual fund categories analysed -- it's not that each and every debt fund scheme / plan delivered less than 5%; less than 5% is just an average figure, funds from some AMCs delivered less than 5% and some more than 5%.
Update 01Oct2023:
That mutual fund managers do a bad job is widely known globally for the past 50 years.
Indian fund managers are no exception.
Of all the fund categories tracked by Value Research, there are 15 fund categories with less than 5 percent trailing 3-year CAGR returns as of 30Sep2023 - of course, fund managers will give you excellent post-facto reasons.
Mind
you average CPI inflation in India in the past three years is more than
7 percent -- at least as per 'official and declared' records.
List of mutual fund categories with less than 5% trailing 3-year CAGR returns as on 30Sep2023 >
-------------------
References:
Important information relating to SEBI categorization and rationalization of mutual fund plans introduced in 2017:
Raw data from Value Research >
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Weblinks and Investing-------------------
Disclosure: I've vested interested
in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if
any.
Disclaimer: The analysis and
opinion provided here are only for information purposes and should not be construed
as investment advice. Investors should consult their own financial advisers
before making any investments. The author is a CFA Charterholder with a vested
interest in financial markets.
CFA Charter credentials - CFA Member Profile
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He blogs at:
https://ramakrishnavadlamudi.blogspot.com/
https://www.scribd.com/vrk100
X (Twitter) @vrk100
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