Fickle Funds: Novel analysis of Moneylife magazine reveals how the mutual funds behaved in the 2008 market crash and 2009 rally
What was the trading and investing pattern of fund managers as the market took a steep dive from early January 2008 and then started a steep climb from early March 2009? This is precisely what a novel analysis in the latest issue of Moneylife magazine reveals.
Tweet-- What was the trading and investing pattern of fund managers as the market took a steep dive from early January 2008 and then started a steep climb from early March 2009? This is precisely what a novel analysis in the latest issue of Moneylife magazine reveals.
Moneylife’s cover story titled “Fickle Funds” points out that fund managers are, after all, human who buy the wrong stocks; at the wrong time; and sell at the wrong time. They cruise along in a bull market confusing luck with performance and are shocked to find the market collapsing around them. They talk of value investing but hold on to expensive stocks hoping for one more rally.
Mutual funds are supposed to be the best bets for those who have no idea about markets and individual stocks. Picking stocks is a job that needs long years of knowledge and expertise and mutual fund managers are supposed to be experts in that game. Moneylife has been pointing out in many of its articles on mutual funds, including some unusual cover stories, that fund management is not an easy job. Nothing captures this behaviour better than Fickle Funds. The analysis captured the fund behaviour through an analysis of the portfolios of the top 20 equity diversified schemes. Based on this, four clear patterns of fund behaviour emerged.
THE TRIGGER HAPPY. They Buy, Sell, Buy, Sell
Funds have been buying and sell the same stocks erratically for no reason except to chase momentum. This includes Sundaram BNP Paribas Select Midcap Fund, Franklin India Flexi Cap Fund, and HDFC Equity Fund.
LAST IN, LAST OUT. They Buy High, Sell Low
Retail investors are known to jump into stocks at the peak and sell in panic at the market bottom Surprisingly, Moneylife has discovered cases where fund managers have acted similarly. Those who have grossly mistimed their buying and selling include UTI Equity Fund, ICICI Prudential Dynamic Plan and HDFC Equity Fund.
THE BELIEVERS. They Buy and Hold through the Crash
Buy and hold is one of the classic tenets of investing. But most of the funds don’t practise it. But Moneylife study found out that some hold on to the same stock through the crash. UTI Equity Fund, UTI Mastershare, Reliance Long Term Equity Fund and Fidelity India Special Situation Fund are some examples that have either remained invested in whatever stocks they had purchased during the bear period or increased their holding on hopes of market revival.
HOPING FOR THE BEST. Buy and Hold and Exit Slowly
In the fourth kind of fund behaviour the funds remain put in a crashing market but has no pre-planned exit strategy. Then they start exiting slowly. One example of this is UTI Mastershare followed by UTI Equity Fund and SBI Magnum Sector Umbrella – Contra.
For the past decade- and-a-half, retail investors have been urged to get out of the market instead of losing money foolishly trying to do it by themselves. “Investing is too complex,” the individual investor is told, and so “please turn over your money to the experts. They will get you better returns.” If this is the conventional wisdom, there are just too many exceptions to it. As a normal investor, mutual funds can be your first step into the world of investing. But funds are found to be doing exactly what an average investor is asked not to do. This can inflict large losses, something one learns only with hindsight.
Notes to Editor
About Moneylife:
Moneylife has been launched by some of India's best financial journalists.
Debashis Basu, a Chartered Accountant by qualification with 25 years of experience as a journalist and the author of several business books is the Editor & Publisher. He has worked with Times of India, Business World, Business India, Business Today, Financial Express and has written columns for Business Standard and The Economic Times. Sucheta Dalal, among the best known financial journalists in India and former Business Editor of The Times of India is the consulting editor. Based on her outstanding investigative journalism spanning two decades, she was awarded Padma Shri in 2006.
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