A look at the 15-year old history & performance of the Morgan Stanley Growth fund, which will be up for redemption
30-Dec-2008 •Research Desk
Morgan Stanley Mutual Fund's maiden fund, Morgan Stanley Growth is due for redemption in January 2009. The fund will turn open ended after completion of 15 years as a close-ended tenure.
The question is, should investors redeem their units in such a market or should they stay put? An investment of Rs 1,000 in the fund during its offer period would result in just Rs 4,010 (December 8, 2008). This translates into an annualised return of 9.75 per cent over almost 15 years.
But the current market conditions are also to blame. Since the fund has a long history, it makes sense to see how it has stood the test of time over all sorts of markets. We have done just that by dividing the fund's performance into three phases.
What's worth noting is that over the years, the fund has been able to curtail its fall as compared to its peers. The only exception being in the current market scenario when it shed a nominal 2 per cent higher than its peers (December 8, 2008).
Unfortunately, over its entire history, it has failed to deliver impressively. Its 14-year trailing return of 9.59 per cent (November 30, 2008) puts it way below Franklin India Bluechip (18.61%) and Franklin India Prima (12.59%). Overall, a rather mediocre performance.
Phase 1: February 9, 1994 to December 31, 1998
With a return of -3.95 per cent, the fund ranked 5 within its peerset of 11 funds. Its average performance kept the NAV below its face value of Rs 10 most of the time. It outperformed the category average in 1996 and 1998, matched it in 1995 and lagged behind only in two years.
The fund was a stock collector mainly due to its huge corpus. In March 1995, it held 338 stocks and managed to bring it down to 148 stocks within three years. Over diversification dented the returns.
Phase 2: January 1, 1999 to December 31, 2003
Trimming the portfolio to just 37 stocks by December 2003 helped. The returns matched the average and it bagged the third rank. It delivered an annualised return of 23.53 per cent in these five years as compared to the average 22.38 per cent. In 1999, its return of 141.13 per cent was well above the 115 per cent return delivered by the average peer. In 2000 and 2001, when the category gave a negative return, it managed to get away with an average fall in the former and a lesser one in the latter. It failed to deliver even average returns in 2002 and 2003. The fund's NAV ranged from Rs 9.71 to Rs 27.93 in this phase.
Phase 3: January 1, 2004 to December 8, 2008
With an annualised return of 7.32 per cent, its performance has been lackluster. It managed to stay afloat in 2005 and 2006 by a small margin, while it underperformed the average peer in 2004 and 2007.
Though it overcame its major obstacle of a bloated portfolio, its sector bets went wrong. High exposure to basic-engineering in the first two quarters of 2004 and to the financial services sector in the second quarter that year proved wrong. In the first two quarters of 2007, it was heavy on computer software stocks that were badly hit. Its year-to-date return December 8, 2008 stood at -59.23 per cent, while the average fall was 56.76 per cent. In 2008 too, its top two sectors --financial services and energy, have shed considerably.
