What is your portfolio strategy?

[Vicky78]

Hi guys what strategy do you follow to build your mutual fund portfolio?

Here is my equity portfolio. I use Bank FD instead of debt funds. Though I have to gradually shift to debt funds in the future to reduce taxes.

Sector equity fund 20%
Infrastructure equity Fund 20%
Mid Cap equity fund - 20%
Conservative large cap bias equity fund -20%
Large Cap bias tax saver equityfund -20%

I chose one fund in each category that has completed 3 years.I check out the 3 month, 6 month, 1 year and 3 year returns. The fund should have performed better than its peers in bear markets. In mid cap funds I also consider the size of the fund. Apart from this, the aspects to consider is the entry load, exit load, performance of the fund manager.

Please share your strategy and pls comment on any flaws in mine

 

[yoogi]

dear Vicky78,

(78 born?) what is your nature of work? That also greatly impact the portfolio.

For example, I work in IT and I dont invest in IT.

See, my skill is significant part of my portfolio, and if Technology sectors goes badly for next 4 years, I might loose job as well as part of my equity portfolio as well. So I dont put even a single paisa in Technology consciously. (But some of my mutual funds does invest in IT, just because they are ELSS).

Looks like yours is nicely spread. If you are intrested, you can go for BRIC fund that is on offer (Go global), when you think you are ready to reduce your large cap exposure.

 

[Vicky78]

Thanks for the suggestions yoogi

So far i had not thought of not investing in my nature of work.

Once i am no longer single I shall exit sector funds and further reduce my risk in the portfolio.
For my risk profile I would like my portfolio to have atleast 50% large cap stocks.

I would definately want to invest in some BRIC funds. All these global funds are new... going to wait till they all prove themselves. Then I shall kick out the sector funds from my portfolio and bring in some BRIC Funds or rather more specific (if available) China Fund or Brazil Fund. That is because BRIC as such is too big a geography for the fund manager to get place bets on select stocks.

 

[yoogi]

As I said, yours is nicely spread. You know your risk levels and have designed the best portfolio.

sector funds are good (risky but good), Make sure it is not the sector that you depend for your daily bread. Sometimes timing a sector fund is very useful. Or have a long term systematic plan (quarterly). If you have entered technology 2 years ago your portfolio would have doubled. If you have entered 6 months ago, you are in for a heavy loss).

If you want to go global, may be shed a little in everything. 10% from largecap, 5% from midcap, 5% from sectors.. I'm not sure how BRIC or other global funds works. But definitely no fund manager will pick stocks from 4 nations. Too big a task. They will either invest in top performing mutual funds route (Fund of funds), or invest in index of these nations. That way he will just track index or fund performance, analyse the nations economy and forget about individual stocks.

 

[Vicky78]

ok... Thanks Yoogi

 

[Vicky78]

Are midcaps really necessary in a portfolio?

Here is top 10 two year returns of (non sector, non ELSS) equity funds.There is not one midcap fund!!!!

JM Basic 55.60
Tata Infrastructure 49.33
DSPML T.I.G.E.R. Reg 49.25
UTI Infrastructure 45.35
Magnum Multiplier Plus 44.49
Magnum Equity 43.95
DSPML Top 100 Equity Reg 43.89
Birla Sun Life Frontline Equity 43.26
Reliance Vision 42.98
Tata Select Equity 42.81

Source: Value reserch

If we take the top ten 3 year average, there are 3 funds magnum global, reliance growth and sundaram midcap. All three today are sitting with swollen funds size and are average performers. Investing in aggressive multicap funds appears to be more rewarding than midcaps.

So are mid cap funds necessary in a portfolio?

 

[yoogi]

well, that is definitely an interesting question.

My strategy is that I will deal large caps myself and leave mid-cap worries to mutual fund managers.

Read this for some more insight.

http://ajayshahblog.blogspot.com/2007/05/derivatives-on-nifty-junior-and-cnx-100.html

The actual growth for next 10 years probably lies beyond CNX-100. I can bet it is actually in (CNX-500 minus CNX-100). Well these companies probably have a market cap of about 1000 cr - 4000 cr.

The reasoning is P/E expansion is more likely in these stocks than large caps. Actual growth may not vary much.

 

[ravi_s_ghosh]

Here is something that you would like to read.

http://www.traderji.com/mutual-funds-discussion-forum/7743-mf-investment-system.html

 

[Vicky78]

NO more midcap/small cap funds

Investing in aggressive plain vanila equity like DSPML Equity & Birla Sunlife Equity are more almost as good as a midcap fund (over a period of time say about 6% lesser returns). Many of these mid caps companies are not well researched and the returns these funds produce are purely based on the skill fund managers. Even the mid/small cap funds of process driven companies like DSPML & Franklin have suffered in recent times.

 

[yoogi]

well, vicky that is why I go for mutual funds for small/mid caps and planning to handle largecaps myself. They should do their research well for us. Also one has to wait for Mid-caps to become largecaps to reward the real benefits. The long term here could be as high as 6-10 years. What happens in 6 months cannot be criteria for judging their performance.

I dont expect to pay to a mutual fund manager for investing in SBI and Larsen. Cant we do it ourselves and save about 2.5% a year. ( thats about 68% in 20 years...)