46 equity schemes beat Sensex to new highs

Last Updated: Mon, Nov 04, 2013 06:57 hrs

The net asset value of forty-six equity mutual funds have hit their all-time highs even before the BSE Sensex scaled new peaks.

They reached their highest ever NAV by 29th October or the day before the Sensex reached its all-time closing high, and in some cases even beat the index by almost a fortnight to reach their peak. They comprise around 20 percent of the total 240 equity mutual fund schemes in existence and account for over Rs.20,000 crore in assets under management, according to data from mutual fund tracker Value Research.

V Balasubramanian fund manager at IDBI Asset Management Ltd, who manages one of the funds with an all-time high NAV, said that those who avoided cash calls during the pessimism which prevailed a few months ago have done well.

"There was an atmosphere of total pessimism, people who took cash calls to deal with the situation would have been affected negatively," he said.

A cash-call is when a fund manager holds a portion of his assets in the form of cash, usually on the expectation that the market will fall.

Overall redemption pressure which forces funds to liquidate their holdings to pay back investors who want to withdraw from the scheme has also affected performance for the industry said Balasubramanian.

The Early Birds:
Forty-six schemes had already hit their highest-ever NAV by 29th October , one day before the Sensex hit an all-time closing high
Schemes which stayed invested despite pessimism have outperformed
More schemes expected to peak as broader market joins rally
Many fund managers had taken cash calls expecting volatility among those yet to reach highs
Redemption pressures to have faced them to liquidate positions in other cases

"One cannot always liquidate when redemptions happen, one has to do it in anticipation of coming redemptions. This has an effect on performance," he said.

Thirty-four of them having reached their highest ever level in the same week as the Sensex according to data as of 29th October. The remainder of the dozen schemes all reached their all-time high in terms of Net Asset Value (NAV), the value of each individual unit in the scheme, in the second half of October, some as early as the 18th of the month.

A fund manager with a foreign fund house whose schemes are not amongst those which have reached new levels stated that non-blue-chip stocks are still off their highs; and that more funds would do well when they catch up.

"The broader market has not participated which has had an impact on the performance of schemes which would have them as part of their portfolio. This is expected to change in the next leg of the rally, which is typically when such scrips also begin to catch-up," he said.

He added that while many mutual fund schemes may not be at their highs, they would be in close range of the same.

Most other schemes achieved it around the time of the previous high in November 2010 or before. Seventy-one schemes reached it in 2010 and 66 in 2008.

The 46 schemes which hit new highs before the Sensex have a combined average assets under management of Rs.21729 crore or roughly 17 per cent of the total assets under equity schemes. Interestingly, fourteen of these schemes are index funds or exchange traded funds(ETFs) which are passively managed without the active stock-picking that characterises other schemes.

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