MFs hold fort even as stocks fall from 52-week highs

As investors scurry for cover amid the plunge in mid and small-cap stocks, mutual fund portfolios are truly providing refuge to the existing bleak scenario. Perched atop 52-week highs even a few days ago, as many as 366 stocks have shed more than 30% from such highs. Another 240 scrips have lost between 20% and 30% from their 52-week highs. Even as there is wealth erosion in these 600 stocks, there is just one mutual fund scheme that has actually lost between 20-30% from its one-year peak, data shows.

It is not just the penny stock traders, the carnage in mid and small stocks has hit serious investors too. Shares of PC Jeweller are down 68% from 52-week high hit in mid-January this year. Supreme Infrastructure is down 71% from its high. Talwalkars, KSK Ventures, Orient Paper, Reliance Defence, Bombay Rayon, Dhampur Sugar, Dollar Industries, Tube Investments and MRO-Tek, among many others, are down between 70-90% from their respective 52-week highs. Losses have piled up in almost every sector over the past few weeks, leaving direct equity investors with no shield.

However, portfolios managed by fund managers have not done that bad. In fact, MF portfolios have stood tall. Data from Buckfast Associates shows that just one out of 205 schemes suffered a 20-30% decline from its 52-week peak. In comparison to over 250 stocks that tanked 10-20% from their 52-week peak, only 48 MF schemes or 23% suffered the same fate. As volatility rose, the risk management approach of funds came to fore. "One cannot beat a professional in their field be it money, sport or art," says Vijai Mantri, chief mentor, and co-promoter, Buckfast Investment Advisory.

Most of the MF schemes actually helped investors survive the stock market correction with just a scratch. While only 14% stocks fell less than 10% from their 52-week peak, 76% of MF schemes (156 out of 205) managed to restrict losses to less than 10%. Poor quality stocks usually never make it to MF portfolios because of stringent filters and other criteria. The performance data includes all tax-saving funds, diversified equity funds including mid and small cap schemes, but excludes hybrid products like balanced funds, children gift funds, dynamic asset allocation funds and sectoral funds.

The largecap bias of many funds have proven to be saviour. "Unless restricted by their mandate, fund managers had started moving to largecaps from November-December last year. By the time the first sign of correction appeared in January 2018, MF portfolios were largely positioned towards largecap stocks while cutting mid and smallcap exposure. They did keep mid and small cap shares but those are good quality companies where fund managers felt prevalent prices did not reach the true intrinsic value," points out Anil Rego, CEO and founder, Right Horizons.

...& ANALYSIS

• In the first sign of correction in January 2018, MF portfolios largely moved towards largecap stocks
   
• Data includes all tax-saving funds, diversified equity funds including mid and small cap schemes, but excludes hybrid products like balanced funds, children gift funds
   
• While only 14% stocks fell less than 10% from their 52-week peak, 76% of MF schemes (156 out of 205) managed to restrict losses to less than 10%