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Small funds outdo bigger ones

This article was posted on Jun 14, 2009 and is filed under Market News

NEW DELHI: Investors who moved towards larger fund houses in search of safety have been badly bruised as smaller fund houses have given more value to customers than the bigger ones in some categories.

When equity markets were heading south last year, investors flocked towards the larger fund houses seeking security, which they might have got but at the cost of missing out on swift creation of wealth.

In the equity category, majority of the outperforming funds belong to the smaller fund houses. Among the top 10 equity funds, eight funds belong to smaller size fund houses and only two funds are from larger fund houses.

The Taurus Infrastructure fund is on top with a return of 108% in the last six months. Even though the second and seventh top performing funds – SBI Magnum Midcap and SBI Magnum Sector Umbrella-Emerging Businesses – belong to SBI Mutual funds, the other top performers are from small fund houses. These include Principal Emerging Bluechip, JM Mid Cap Fund, JM Basic Fund and Principal Junior Cap. All of these funds generated more than 90% of return.

Similarly, in the sectoral fund category, out of top 10 performing funds, six are from relatively smaller fund houses. Interestingly, the top five funds of this category belong to smaller fund houses. The first five places were taken up by Taurus Infrastructure, Sahara Banking and Financial Services, Sahara Infrastructure Fund-Variable Pricing, Sahara Infrastructure Fund-Fixed Pricing and Canara Robeco Infrastructure. Each of them generated more than 70% return.

The same goes for mutual funds in the diversified equity category, where the top eight performing funds are from smaller fund houses. Each of these funds generated a return of more than 75%. The equity linked saving schemes (ELSS) segment further confirms the trend as seven funds of the top ten ELSS funds are from smaller asset management companies (AMC).

However the fund of funds (FOFs) category – one in which one mutual fund invests money in that of the other – threw up a tie with both larger fund houses and smaller fund houses posting five each.

According to A N Sridhar, fund manager, equity at Sahara Mutual Fund, the performance of funds is definitely pointing to that trend. Though the gains are encouraging, the challenge lies in sustaining such returns.

According to Navin Suri, CEO of ING Investments, the main reason behind the underperformance of the larger players is the fact that it was difficult for larger players to get out of less liquid stocks that they had in their portfolio. If the fund manager wishes to exit a stock, which is less liquid, the smaller fund houses will get an unfair advantage as the size of their exposure is less.

Surprisingly smaller fund houses have shown a better performance in the liquid fund category too. However, these schemes generated return of less than 5% with as many as nine schemes belong to smaller AMCs.

While larger fund houses lag behind in the equity and liquid fund category, they clearly have an edge over the smaller AMCs in debt instruments. Also, in the gilt fund segment, majority of top performers are from larger AMCs.

source: Economictimes

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