Mutual Fund Performance & Trends 2015

How mutual funds have fared in 2015…

The year 2015 has not been too charitable to the equity markets. The Nifty did rally in the early part of the year and crossed the 9000 mark. Post-March, the markets have lost close to 15% and have suffered repeated bouts of volatility. In this entire melee, Indian mutual funds have come out trumps.

The outperformance of Indian mutual funds has come largely from the inclusion of mid-cap stocks in stock selection. Look at the statistics! 80% of the mutual funds have outperformed the BSE 500 index. But a whopping 95% of the funds outperformed the Nifty. That is indicative of the outperformance of mid-cap funds and mid-cap stocks versus the large cap names. Let us look at some of the key trends displayed by mutual funds.

 It has largely been a mid-cap story

 The best performing funds like the DSP Micro cap Fund, Mirae Emerging Blue Chip Fund and Motilal Mid Cap Fund are predominantly focused on mid and small cap stocks. Mid cap stocks have benefited from lower commodity prices as well as lower interest rates. Unlike large cap stocks, these mid caps have not been bogged down by too much debt on their balance sheets. This is the first time that mid cap and small cap stocks have outperformed large caps in a market correction. If you look back at 2008 or 2011, mid cap performance was vastly inferior to large caps.

Risk-on was the theme…

The year 2015 has been more partial to funds that have adopted risk-on as a theme. Funds that were willing to churn their portfolios and who were willing to position themselves ahead of market trends benefited the most. This also explains why many winners emerged from recently set up AMCs and not necessarily the traditional AMCs. Among fund managers, those who managed a strategic shift to mid caps tended to benefit more during the year.

Another trend that came out was the outperformance of balanced funds. Most balanced funds have a mix of debt and equity. Debt portion tended to benefit as G-Sec yields showed a marked compression during the year. Not surprising, because the year also saw 125 bps of repo rate cuts. Falling yields meant capital appreciation on bonds. Thus a combination of equity and debt helped balanced funds to outperform.

Defensives still rule the roost…

Defensive funds focusing on pharma and FMCG outperformed despite high P/E valuations. While pharma funds managed to return 15-20%, MNC funds returned 13-15%. This is in sharp contrast to the previous year which was largely dominated by the cyclical names. The moral of the story is that a combination of defensives and mid caps would have worked wonders in 2015! ©

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