Here's some solid proof of why investors should not chase past performance. Not a single equity fund out of the top ten performers of 2003 has been able to retain its position this year. For example, Franklin India Prima, which had returned an amazing 177.13 per cent to grab the top position last year is down to rank 31. This primarily mid-cap fund has returned 21.09 per cent as on December 02, 2004, against the 27.56 per cent gain of the CNX Mid Cap.
The scene looks bleaker for funds like Reliance Vision, Principal Resurgent India Equity and tax-planning fund Birla Equity Plan. Sitting comfortable at sixth position last calendar year, Reliance Vision has sunk to 89th position. With a year-to-date return of just 11.27 per cent, the 2003 top-performer has missed even the diversified category average returns of 15.31 per cent. Of last year's top ten, it's the worst performer this year.
Stories of Principal Resurgent India Equity and Birla Equity Plan are no different. While the former has slipped to 61st position with a return of 15.40 per cent (as against 9th rank and 143.94 per cent return last calendar year), the latter is down to 55th rank and has returned 16.85 per cent to marginally beat its category average return of 16.82 per cent.
Among the winners of 2003, HSBC Equity, Reliance Growth and Pru ICICI Tax Plan have, however, saved their face-all of them have managed a place in the top 20 funds of 2004. Overall, top ten performers of 2003 have gained an average 21.12 per cent as on December 02, 2004, as against the 36.13 per cent return of top ten funds of 2004.
So what has triggered such a downfall? The answer lies in the way the funds have shuffled their assets between large-, mid- and small-cap stocks.
One of the reasons why last year's winners managed such whopping returns is that they were able to ride the 2003 mid-cap rally. Consider this-against the 72.89 per cent return of Sensex, CNX Mid Cap ended 2003 up 135.97 per cent. On an average, the top ten performers of last year had 43.33 per cent of assets invested in mid-cap stocks and 37.89 per cent in large caps. Rank one winner Franklin India Prima had as much as 64.26 per cent of assets invested in mid-caps. This year, while they almost maintained their last year's exposure to mid-caps, they reduced investments into large-caps and increased bet on small caps from an average 18.21 per cent in 2003 to 23.47 per cent as on October 31, 2004.
On the other hand, top ten funds of 2004 considerably increased their bet on mid-caps from 34.38 per cent in 2003 to 45.47 per cent this year. They also did well to reduce exposure to large caps from 45.43 per cent to only 24.72 as on October 31, 2004. This strategy has clicked from them as the Sensex is up only 8.38 per cent as on December 02, 2004, against the 27.56 per cent return of CNX Mid Cap.
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