Portfolio containing only multi-cap funds

[lotmanythings]

In principle the fund manager should be better at knowing which cap to choose than I am therefore why isn't this approach justified.

The funds I have in mind are
Quantum Long Term Equity Fund
HDFC Equity Fund

After all a long term is an addition of short terms isn't it.

 

[asterix24]

Hi Lotmanythings,

I will comment on the choice of funds which is excellent. Both your funds are highly rated and if your strategy is to proceed with only multi-cap funds, then the choices are truly fantastic.

Having said that, I will address your first comment. Quote:"In principle the fund manager should be better at knowing which cap to choose than I am". Yes, you are correct, but the fund manager has a strategy to adopt in terms of the funds objectives. Though I am neither a fund manager nor qualified to be one, I will try to provide an insight into a fund manager's choices.

A fund manager has to choose and try to stick a capitalization strategy which the fund has set out for itself. Along with this, the other choices one has to make include the amount of risk/exposure to slightly riskier stocks/sectors, amount of exposure to a specific stock, amount of cash held as part of the fund etc. There will always be a continuous churn due to these factors and hence, the performance of the fund depends on the choices made by the fund manager at that time.

Coming to your last point, I quote "After all a long term is an addition of short terms isn't it. ". Mathematically, it is similar to integration, but may not be true for a lot of things in life. As I have tried to capture earlier, if a fund manager has made some choice which may not augur with your investment strategy, then one has to adapt and make a choice. For every choice, there is a consequence and hence, if you decide to stick on to the same fund, remember it's your decision.

A 5-star fund today may not be a truly 5-star fund 1 year down the line. At that time, you take a call based on the realities at that point of time. For example, Magnum Contra used to be a superb performer a long time back (and to a certain degree does have a decent rating even now). However, a simple glance of the current suggested funds by other members shows that this doesn't figure in current scheme of things.

In general, as an investor, one needs to take an informed decision and hence, I have tried to provide a perspective

Happy Investing !!

 

[yodlee99]

Add to the earlier comment is that the fund managers cannot move across caps quick enough, as compared with our ability to invest across caps. Understand that they deal in 100's or 1000's of crores of AUM which we don't. For eg, currently the fund manager of IDFC premier equity fund is having issues with investing large amounts of cash in mid cap funds, just like Reliance growth. Understand their limitations as well.