markettrend766
29-03-2009, 09:46 AM
Kotak Equity Fund of Fund’s return of -33 per cent over the past year has outperformed the diversified equity fund category return of -40 per cent.
However, as a scheme holding a portfolio of funds from other asset management companies as well, Kotak FoF has not delivered superior returns since its launch in July 2004.
In other words, during the same period, investors would have gained more by holding these funds – Kotak 30, Birla Sunlife Equity or Franklin India Prima Plus, directly .
Further, even as the fund has kept pace with its benchmark since launch, it has not managed to outperform during bull markets. Investors can consider switching to another fund from the same fund house - Kotak 30.
Its return of 22 per cent compounded annually since its launch in 1998 appears commendable. The fund has not only outperformed Kotak FoF over the long term but also offers similar downside protection.
Larger universe but…
While most FoFs have a mandate to invest in schemes managed by their own fund houses, Kotak FoF has the option of investing in funds from other AMCs (Asset Management Companies) as well.
As a result the fund’s investment universe is much larger than its peers. On the other hand, other FoFs such as those from the Birla Sunlife and ICICI Prudential stables only invest in their own schemes.
However, in the current environment, a FoF that can dynamically allocate between equity and debt may be more preferred than a scheme that merely holds a basket of equity funds, all of them being subject to the same market vagaries.
Large-cap bias
Kotak FoF’s middling returns cast doubts on whether the large universe advantage was optimally used.
For instance, for the whole of 2006, the fund returned 35 per cent, shedding some returns during the short correction in May 2006. This return lagged the Sensex by 12 percentage points, at a time when a number of funds outperformed the Sensex by at least 10 percentage points.
Take 2007, when a good number of funds in the top quartile returned an effortless 70 per cent; Kotak Fund of Funds delivered about 54 per cent, just about meeting its benchmark Nifty.
Clearly, the portfolio constructed during bull runs has not helped outperform the market and peers.
While the fund does not necessarily have such a mandate, it has, on most occasions, demonstrated a bias for large-cap funds. This perhaps explains its underperformance, during the above years, when mid-caps ruled the market.
Did the fund fare better in containing declines? Here again the numbers do not appear too convincing.
On a rolling monthly return basis over the last three years, when the fund recorded negative returns on 17 occasions, it contained declines better than its benchmark only on eight occasions, or 47 per cent of the times.
Over a four-year period, Kotak FoF’s performance relative to other FoFs has also been average.
Franklin Templeton India Dynamic PE and Birla Sunlife notched up 13.4 per cent and 10.1 per cent respectively during the above period, against Kotak FoF’s 8.5 per cent.
However, as a scheme holding a portfolio of funds from other asset management companies as well, Kotak FoF has not delivered superior returns since its launch in July 2004.
In other words, during the same period, investors would have gained more by holding these funds – Kotak 30, Birla Sunlife Equity or Franklin India Prima Plus, directly .
Further, even as the fund has kept pace with its benchmark since launch, it has not managed to outperform during bull markets. Investors can consider switching to another fund from the same fund house - Kotak 30.
Its return of 22 per cent compounded annually since its launch in 1998 appears commendable. The fund has not only outperformed Kotak FoF over the long term but also offers similar downside protection.
Larger universe but…
While most FoFs have a mandate to invest in schemes managed by their own fund houses, Kotak FoF has the option of investing in funds from other AMCs (Asset Management Companies) as well.
As a result the fund’s investment universe is much larger than its peers. On the other hand, other FoFs such as those from the Birla Sunlife and ICICI Prudential stables only invest in their own schemes.
However, in the current environment, a FoF that can dynamically allocate between equity and debt may be more preferred than a scheme that merely holds a basket of equity funds, all of them being subject to the same market vagaries.
Large-cap bias
Kotak FoF’s middling returns cast doubts on whether the large universe advantage was optimally used.
For instance, for the whole of 2006, the fund returned 35 per cent, shedding some returns during the short correction in May 2006. This return lagged the Sensex by 12 percentage points, at a time when a number of funds outperformed the Sensex by at least 10 percentage points.
Take 2007, when a good number of funds in the top quartile returned an effortless 70 per cent; Kotak Fund of Funds delivered about 54 per cent, just about meeting its benchmark Nifty.
Clearly, the portfolio constructed during bull runs has not helped outperform the market and peers.
While the fund does not necessarily have such a mandate, it has, on most occasions, demonstrated a bias for large-cap funds. This perhaps explains its underperformance, during the above years, when mid-caps ruled the market.
Did the fund fare better in containing declines? Here again the numbers do not appear too convincing.
On a rolling monthly return basis over the last three years, when the fund recorded negative returns on 17 occasions, it contained declines better than its benchmark only on eight occasions, or 47 per cent of the times.
Over a four-year period, Kotak FoF’s performance relative to other FoFs has also been average.
Franklin Templeton India Dynamic PE and Birla Sunlife notched up 13.4 per cent and 10.1 per cent respectively during the above period, against Kotak FoF’s 8.5 per cent.