The last one year ending September 30, 2012 hasn’t been easy for fund managers as well as investors. It was in this period that the Indian equity markets bottomed out, breaking the falling trend it had witnessed from the peak of 6,338.50 on the Nifty on November 5, 2010.
The October 2011-September 2012 period has seen a good amount of volatility and swings. The Nifty fell to 4,531 on December 20 last year, its lowest level seen since August 2009, before scaling to its 17-months high of 5,815 on October 5 this year.
India Inc, too, was undergoing tough times in the form of pressure on profitability, rising interest costs and slowing growth. Not surprisingly, many well-known companies were seen defaulting on their debt obligations. And predicting stock price trends were far from simple.
While the global environment was also weak with concerns over Euro zone rising, amid rising political uncertainties, the government’s finances have also worsened. What’s more, inflation has almost refused to budge and continues to rule high, making it difficult for the Reserve Bank of India (RBI) to cut rates. Thus, even as the markets hoped of a rate cut on slowing growth, the RBI belied these expectations – as a result, volatility in the debt market was also high. The rupee’s depreciation and volatility – it moved from low levels of 49 to a US dollar to over 57 – only added to the uncertainties.
While the Indian equity markets are still closer to their recent highs, the fundamental situation hasn’t changed much as domestic growth concerns and political and policy logjam haven’t faded. Likewise, the concerns over Euro zone and looming US fiscal cliff remain.
In this context, fund managers, both on the equity and debt side, had a tough job on their hands.
It was in this backdrop that a four-member jury headed by G N Bajpai, Ashvin Parekh, Rajeev Gupta and Vibhav Kapoor met to pick the winners of the Business Standard Fund Managers of the Year.
The meeting kicked off with the jury members analysing the parameters used to rank the fund managers following which they sought finer details, including those on absolute fund returns, standard deviation and the adjusted Sharpe ratio.
The concept of ‘Adjusted Sharpe ratio’ or the weighted average Sharpe was introduced in the year 2010. While the Sharpe ratio measures the return for every unit of risk taken and is a better way to measure a fund manager’s performance rather than looking at absolute returns, the adjusted Sharpe ratio is a step forward. It takes into account the total assets managed by a fund manager in relation to the total assets of the category, besides all the schemes handled by the fund manager. A ranking based on the weighted average Sharpe reflects the difficulty of yielding superior returns, and takes into account the asset size and the performance of all the schemes managed by a fund manager.
In a bid to refine the process further, last year the jury members had suggested inclusion of a threshold limit in terms of fund size. They said, although the weighting by assets managed is a sound method, a threshold limit will only make it stronger. Accordingly, the bottom 10 per cent of the funds in the equity category and the bottom quartile in the debt category were excluded.
The data was provided by ICRAOnline. A composite score was ascertained for each fund manager comprising of the weighted average of the Sharpe ratio achieved by each scheme managed by him/her. The average one year corpus (based on month-end figures) of each scheme managed was used as weights to arrive at his/her score.
The deliberations went on for almost an hour. The jury also recommended considering the 91 days Treasury bills one year average return as risk-free return for the debt funds. This was to ensure that fund managers taking risk were appropriately rewarded.
After carefully analysing the data and checking for its accuracy, the jury members arrived at the winners.
The two fund managers who walked away with the awards are Prashant Jain of HDFC Mutual Fund in the equity category and Sachin Padwal-Desai of Franklin Templeton Mutual Fund in the debt category.
The superior performance of the HDFC Equity and HDFC Top 200 schemes, two of India’s largest equity schemes by assets, helped Jain bag the award. For Padwal-Desai, all of the five schemes namely, Templeton India STIP, Templeton India Income Opportunities Fund, Templeton Floating Rate Income Fund, Templeton India Income Fund and Templeton India IBA – Plan A, delivered good returns. While the combined average corpus of Jain’s two funds stood at Rs 20,850 crore, the same was Rs 9,740 crore for Padwal-Desai.
Notably, the adjusted Sharpe ratio achieved by Jain was way ahead of the second best fund manager. While Padwal-Desai scored over one of his colleagues by a few points but here too, if the Sharpe ratio of the third ranker is seen, Padwal-Desai was way ahead. All of this reflects the superior risk-adjusted returns the equity and debt fund managers have delivered during this period. In fact, this is the second consecutive win for Jain, who also did exceedingly well last year which helped him bag the Business Standard Equity Fund Manger of the Year.
