AUMs of most large equity schemes of 2007 slip

The sustained money flowing into the mutual fund sector in the past two years by way of systematic investment plans has propelled the assets of several equity schemes into the ~10,000-crore club. While just three schemes were part of this club two years ago, a dozen schemes today manage assets of over ~10,000 crore.

However, here’s a lesson that investors can chew on: Big funds are not invincible and can lag peers on returns. Indeed, as data from the 2007 bull run show, even large schemes can grow unpopular with investors and show a decline in their assets under management (AUMs) over time. An analysis of 15 schemes with the largest AUMs at the end of December 2007 shows that all except two schemes have seen a decline in assets, despite clocking decent returns over the past 10 years.

Infra funds, in particular, have seen a sharp fall in their AUMs. The assets of four infra funds (including power), which featured among the top 15 largest schemes in 2007, have declined between 66 per cent and 83 per cent, data from Value Research show.

Infrastructure was a hot theme in the last bull run and had attracted a lot of money, both in stocks as well as sectoral infra funds. When the global financial crisis hit home, however, several of the stocks corrected sharply.

Changes in fund objectives and mandates may have also indirectly impacted the performance of a few of the 15 funds under consideration, consequently leading to a decline in assets, said experts.

Three of the 15 schemes have been acquired from other fund houses. For instance, HDFC Large Cap Fund was formerly Morgan Stanley Growth Fund.

According to Kaustubh Belapurkar, director-research, Morningstar India, the fall in assets in these top funds may have a lot to do with investor psyche. The bull run in 2007 had driven a lot of investors in largesized funds, including sectoral ones. When the markets fell in 2008 those who had burnt their fingers decided to redeem their investments. “Investors were not mature then and many were chasing past returns, leading to a mismatch in expectations. This led many to take money out of these large funds, leading to a depletion in their assets,” Belapurkar said.

“The performance of some of these large funds has been a little patchy during this period (last 10 years). While size is important, investors tend to drift towards funds that are able to maintain a consistent performance,” said Manoj Nagpal, chief executive officer, Outlook Asia Capital.

Interestingly, a number of high-flying schemes of Reliance Mutual Fund — Reliance Vision, Reliance Growth, Reliance Top 200, Reliance Mid & Small Cap, Reliance Focused Large Cap and Reliance Diversified Power Sector Fund — have seen a decline in AUMs between December 2007 and now. One more scheme, Reliance ETF Bank BeES, which was acquired from Goldman Sachs fairly recently, is also part of the list.

Flagship funds Reliance Growth and Reliance Vision had clocked supernormal returns between 2003 and 2007 and were able to garner sizeable assets, especially in 2007, according to experts. Changes in fund mandates and a relative dip in performance led to a depletion in their assets after 2008, experts said.

“We invest for a cycle and not shorter timeframes. Since inception, the net asset value of Reliance Growth has grown 100 times and is the only fund in India with an NAV (net asset value) of more than ~1,000. Reliance Vision has had its challenges but has seen a comeback in recent times,” said Sunil Singhania, chief investment officer-equity, Reliance Mutual Fund. He admitted a few funds had seen changes in mandates to meet regulatory requirements, and for better positioning.

According to Nagpal, Reliance’s fund management team has a strong bottom-up stock-picking capability but the fund house’s ability to replicate this skill in a larger portfolio seems to be a challenge at this point.

Reliance Growth remains the third largest equity scheme managed by the fund house.

Among the 15 schemes under consideration, HDFC Equity and SBI Magnum Taxgain Scheme are the only ones that have managed to buck the trend. The former’s assets have more than tripled since December 2007.