Setting benchmarks: Here are 10 high-performance diversified equity schemes

They are an assortment of above-average short- and long-term returns, low expense ratios, and lower investment risk. Krishna Kant cherry-picks the best in class

It is becoming increasingly tough for mutual fund (MF) managers to beat the broader market or benchmark equity indices.

According to data from Value Research, only a quarter of the diversified equity MFs have managed to beat the S&P BSE Sensex in the past year. Fewer than 10 per cent of schemes have given 10 per cent or higher returns in the past year.

The 573 diversified equity schemes across categories and sub-segments have given median returns of 1.5 per cent in 12 months.

By comparison, the Sensex has delivered total returns, together with dividends, of 4.57 per cent during the period.

As a whole, the 142 equity schemes in the sample managed to outperform the benchmark equity index in the period.

The study compares the performance of equity schemes versus the Sensex, and not their respective benchmarks.

The numbers are only marginally better for older schemes in existence for five years or more.

In this sample, 99 of a total of 356 schemes (27.8 per cent) outperformed the Sensex, with median returns of 2.8 per cent in the past year.

If assets under management are factored in, then 78.5 per cent of equity assets have underperformed the broader market in the past year.

This is a dismal display by the MF industry. Analysts blame it on polarisation in the equity markets. The number of stocks outperforming the market, they observe, had reduced over the year, making it tough for fund managers to create a diversified portfolio of high-performing stocks.

For instance, most of the incremental rise in the broader market in the past year is accounted for by banks and a few fast-moving consumer goods stocks, while a majority of stocks in other sectors have been laggards.

Similarly, mid- and small-cap stocks are now underperforming after two years of upbeat performance. This is weighing on the performance of MF schemes.

Some fund managers, however, still managed to beat the broader market and delivered strong double-digit returns.

Catalogued on this page are 10 diversified equity schemes that have consistently beaten the Sensex - both immediately and in the long run. Besides, these funds also have relatively low expense ratios that help improve their net returns.

These 10 funds on the list also score high on risk parameters like standard deviation, Sharpe ratio, and Sortino ratio.

Put simply, these funds offer the best combination of above-average short- and long-term returns, low expense ratios, and lower investment risk.

ICICI Prudential Infrastructure Fund is the top-performing scheme on the list. The fund has delivered 23.6 per cent returns in the past year. Its net asset value was 20.8 per cent in the past six months, more than twice the Sensex’s total returns in the period.

It is followed by HDFC Focused 30 Fund, which has delivered 17 per cent in the past 12 months and 13.8 per cent in the past six months.

Quant Mid Cap Fund is, however, the top performer on a long-term basis, with an 18.8 per cent compound annual growth rate (CAGR) in the past five years, more than double the Sensex’s total returns of 8.81 per cent in the period.

It is followed by ICICI Prudential Value Discovery Fund, which has delivered CAGR returns of 13.2 per cent in the past five years.

In contrast, ICICI Prudential Dividend Yield Equity Fund is at the bottom of the list, with 9.5 per cent returns in the past 12 months and CAGR returns of 9.4 per cent in the past five years. It’s still better than the Sensex’s total returns in the period.

However, the Quant Mid Cap Fund has delivered the best risk-adjusted return, with a Sharpe ratio of 1.29 - more than twice the sample median Sharpe ratio of 0.59.

It is followed by SBI Contra Fund (1.12) and ICICI Value Discovery Fund (1.04).

Note: Return data for the mutual fund schemes as on January 23, 2023, other data as on December 31, 2022; select list of equity funds based on performance across different time periods and a minimum assets under management (AUM) of at least Rs 1,000 crore 

*Represents total share of top 10 stocks in the scheme’s AUM

Sources: Value Research, Capitaline, Compiled by BS Research Bureau