Most plans fail to give double-digit returns, underperform benchmark indices
Even in a year when the markets gained more than 25%, several mutual fund schemes struggled to give double-digit returns and grossly underperformed their benchmark indices.
In the equity diversified category, IDFC Infra (10%), Escorts Infra (12.5%), SBI PSU (10.3%), Baroda Pioneer PSU Equity (14.3%) and Taurus Ethical (12.9%) emerged as the worst performers of 2012. The data was culled out of a universe of about 250 equity diversified funds.
While most of these funds gave returns in low double-digits, they underperformed their benchmark indices and grossly lagged behind the best performers in the category. For instance, at least 10 infrastructure funds gave returns of over 25% last year.
Escorts Infrastructure has given negative returns of 15% and 18% over three-year and five-year periods, respectively, while Taurus Ethical gave returns of 5.28% over a three-year period. Other funds in this category have less than a three-year record.
“Infra stocks underperformed in 2010 and 2011. This had prompted fund managers to modify their portfolios in the beginning of 2012 and exclude certain core infra stocks as well as reduce their exposure in realty. These were the kind of stocks that did well in 2012,” said Dhruva Chatterji, senior research analyst, Morningstar India. Some of these infra funds also had exposure to power and metal stocks, which fared badly in 2012, he added.
The PSU theme, on the other hand, did badly mainly because of the pressure on the asset quality on public sector banks.
Among sectoral funds, the technology sector has fared the worst, with four tech funds giving returns of below 6%. Surprisingly, all of these schemes belong to the top 10 fund houses. These include Franklin Infotech (returns of 0.26% in 2012), Birla Sun Life New Millennium (3.67%), DSPBR Technology.com Reg (4.3%) and SBI IT (5.6%).
Interestingly, all of these schemes have outperformed their underlying benchmark indices. Of these, Birla Sun Life New Millennium and DSPBR Technology.com Reg have both given negative returns over three-year and five-year periods. SBI IT gave negative returns over a five-year period, but gave positive returns over a three-year period.
“Fund managers who took a high exposure in Infosys and Wipro seem to have paid the price. These are the index heavyweights, which underperformed for most of 2012 owing to disappointing earnings numbers,” said Chatterji. Infosys and Wipro slid 15.7% and 1.12%, respectively, in 2012.