It is the end of the year 2021 and many people indulge in “reflections”. I do not necessarily like this but because I had written a blog recommending a few mutual funds, it is only appropriate that I do a reflection on them. Also, I shall end with my selection of active mutual funds for next year.
On Feb 7, 2021; I suggested, we look at the following mutual funds: SBI Technology Opp Fund, Aditya Birla Sunlife Digital India Fund, Tata Digital India Fund, Franklin Build India, Franklin India Focused Equity. Here is how each of them has done from Feb 8 2021 through Dec 27, 2021. Do note that this calculation was supposed to be for investments from Jan 01 onwards but I actually published this in Feb and hence the tracking from Feb.
The three digital funds (investing in IT stocks) saved the day for me. The Franklin Build India fund did better than the index but the Franklin India Focus Fund was an index hugger and not worth the active money paid. Overall, the equal-weighted portfolio returned ~43% primarily driven by being overweight IT-oriented funds.
The funds have done better than the Nifty500. This has done better than the mid-cap index as well. This portfolio was in the top quartile of all diversified equity mutual funds. Not bad that for this year, my cost of investing into an actively managed fund has paid off albeit purely by luck I suppose.
As I look into 2022, what next? I wanted to tweak the methodology a bit. Firstly, I remove any momentum influence as the duration of them may not match (my) desire to churn less. I start with this study which found that for an active mutual fund to outperform, it must be “different”. The author suggests ensuring weightage in the fund should be distinct from weightage in the index else, your returns will mirror the index. While quantitatively it is difficult to do that, I simply screen for mutual funds with low beta (low tracking to the index) in the past 12 months to look for fund managers who have shown an inclination to be different. I then screen by funds with the lowest PE ratio based on the latest available disclosure. Screened together, I select a few names. Intuitively, the way to look at this list is these are funds that are known to be different and are holding cheap stocks. Also, due to the nature of screening for low beta, I expect more sectoral funds and possibly factor-oriented funds as they exhibit divergence from index.
The next part is something I am very fearful to write. When I wrote the Feb blog, I had seven subscribers (probably my immediate family and friends only) and I did not bother on who read the blog and whether it was construed as a recommendation at all because I knew them personally. I see some two hundred subscribers are reading (I am honestly shocked at that number) and am worried and loathe that people would treat these as recommendations. A reminder that my blogs cannot be financial advice by any imagination. Please talk to your financial advisor/planner and build your portfolio.
With the screener, I arrive at the following list of funds: UTI Dividend Yield Fund, Aditya Birla SL Dividend Yield Fund, Nippon India Nifty 50 Value 20 Index Fund, ICICI Pru Smallcap Fund, Templeton India Equity Income Fund, DSP Small Cap Fund, HDFC Dividend Yield Fund, HDFC Small Cap Fund
Note that I shall be investing a portion of my equity portfolio into this. I intend to hold them for most of 2022.
Have a fun 2022.