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Sectorwise Allocation Steers Portfolio Performance

| 5/31/2012 9:00 AM Thursday

It has long been held that the economic environment and the industry in which a company operates determines two-thirds of its stock performance. Extending the same logic to equity mutual funds, their performance is more a matter of correct sector allocation rather than of which company they invest in. This does not mean that putting money in funds which
invest in the right companies will not yield results. However, what we are emphasising here is that the chance of better performance is enhanced by selecting companies from the right sector.

This fact is exemplified in the analysis of the last one year’s performance of all the equity diversified funds, including sector funds. The top quartile is dominated by funds that are dedicated to fast moving consumer goods (FMCG) and pharmaceutical companies. Funds that lie in the international category, including some exchange traded funds (ETF), also fall in the top quartile. In the last one year (from May 28, 2011 to May 27, 2012), the Sensex was down by 10 per cent, whereas the BSE FMCG Index was up by 21 per cent. During the same time, the BSE HC Index is up by eight per cent. What is surprising is that on an average only funds in these two sectors have given positive returns over the last one year.

Returns Generated By Different Sector Funds
SectorsAverage Return In The Last
One Year (%)
Number Of
Funds
FMCG 28.44 2
Pharma (HC) 5.62 3
International -2.28 27
Mid & Small-Cap -4.61 59
Technology -6.08 5
Tax Planning -6.46 36
Large & Mid-Cap -6.7 68
Multi-Cap -7.22 41
Large-Cap -7.32 78
Others -9.42 33
Banking -10.75 11
Infrastructure -16 27

 

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