Need equity portfolio check

[lotmanythings]

1. 45% HDFC Equity Fund - Excellent Track Record, Excellent Fund Manager

2. 35% Quantum Long Term Equity Fund - Small Asset Size, Consistent Track Record,
Value investing principles, encourages long term investing

3.20% IDFC Premier Equity fund - Sound fund manager, Certain measures to prevent capital erosion like preventing lumpsum investments etc.

Please note that
1.This is equity portion of my portfolio
2.I have already obtained the allocation in IDFC PEF.
3.I will definitely stay invested for the long term ie.7 - 10 years.

 

[asterix24]

Hi Lotmanythings,

Your choice of funds are good. However, I have few questions on your portfolio.

1) Why do you intend to have 2 Multi-cap funds in your portfolio? Both Quantum Long-term Equity and HDFC Equity are multi-cap funds and rated highly by VROL. Given a choice, I would say opt for any of them.

2) Why haven't you considered any Large Cap and Large & Mid cap funds?

Coming to your current plan, IDFC Premier Equity is a Mid and Small Cap fund which is an excellent choice and may I congratulate you on getting allocation.

In general, I would say distribute your investment across different caps. On a decently aggressive but safer route, I would suggest the following

30% into a pure large cap (IDFC Imperial Equity)
30% into a pure Multi cap (Quantum Long Term Equity / HDFC Equity)
20% in a Large and Mid cap (HDFC Top 200 / DSPBR Top 100)
20% in Mid & Small cap (IDFC Premier Equity)

I assume that you have a plan for debt portion of your portfolio and also that you would invest through a SIP route.

Happy Investing !!

 

[lotmanythings]

Please I don't understand why you want both multi-cap and large cap in the portfolio. HDFC Equity is such a solid fund as per track record.

In principle it will do better than a large cap fund wouldn't it or is it another risk calculation you have done and suggested to go for 30% large-cap.

if you compare the returns here (excellent for comparison)
http://www.moneycontrol.com/mutual-funds/performance-tracker/eqd/ab
you'll see clearly that it outperforms.

Well in general I always consider the simple solution to the problem first. You would agree that the simpler solution is to choose a multi cap fund. In fact if I may say so, it is you who have to give me reasons why you choose your 30% Large cap allocation etc. I choose those funds because I like either their process/fund manager and it is consistent with value investing principles.

 

[lotmanythings]

1. I kept 2 multi cap funds simply because it is more likely that a fund performs bad than it performs fantastically compared to its past.

Since in my case the corpus is rather large I thought it be best to split into 2. Who knows tomorrow if the fund manager goes mad :lol:

 

[lotmanythings]

And if I may add some information as per return standards these 2 funds which you have recommended are very poor
Please see the below ranks for various periods in equity diversified category and judge for yourself if past performance has any weight.

1. IDFC Imperial Equity
1wk 1mnth 3m 6m 1yr 2yr 3yr 5yr
235 83 83 90 137 179 35 53
2. DSP BR Top 100
180 58 44 35 95 150 31 8

 

[asterix24]

Hi Lotmanythings,

I acknowledge and appreciate your perspective which is an interesting one. I will try to provide my perspective and look forward to this intellecutal exchange.

If returns are the only one criteria of judging a fund, then you can actually keep churning your portfolio to have only those which give superior returns. Multi-cap and Large Cap funds are fundamentally good. When you say multi-cap gives better than Large-cap, please analyze where this extra ZING factor comes from. It comes from the Mid/Small cap exposure that a multi-cap fund invests into. In a bull market, you can get some fantastic numbers, but please do remember that in a bear market, the reverse is also true.

Coming to my allocation, it has to do with risk aversion along with an average good returns. You may disagree and choose to invest in another manner which is your choice . My reasoning as explained in a personal mail to you are based on my analysis, risk-tolerance and an investing principle that allows me to take certain investment decisions.

30% Large cap gives me the cushion for taking a slightly Larger exposure to Mid and Small cap and multi-cap. If you add up the mid and small cap portions of my intended portfolio, you can observe that the combined figure is well above 50%, which is a big rish mitigated by Large Cap.

As an engineer, I completely acknoledge the simpler the solution, the more optimal it is. However, few years of engineering have taught me that a far too simple a solution is also a recipe for intending unknowns, some of which may not be good.

Coming to you other post, I will quote a simple life principle. We as humans always plan for success. This doesn't mean that we don't consider the worst, but we can't live life with worst. Our parents plan for our success in education like planning for engg/medicine after 12th and from kinder-garden working towards the same. Hence, the concept of fund manager going mad, though probabilistically may be true, is a bit far-fetched.

I hope I have given you a different perspective as food for thought.

Happy Investing !!

 

[asterix24]

And if I may add some information as per return standards these 2 funds which you have recommended are very poor
Please see the below ranks for various periods in equity diversified category and judge for yourself if past performance has any weight.

1. IDFC Imperial Equity
1wk 1mnth 3m 6m 1yr 2yr 3yr 5yr
235 83 83 90 137 179 35 53
2. DSP BR Top 100
180 58 44 35 95 150 31 8

I am not sure where these numbers were got from, but guess money control. I presume that these are rankings and personally, I have quoted earlier, I use only Valueresearch online ratings.

FYI,

IDFC Imperial Equity: http://www.valueresearchonline.com/funds/fundperformance.asp?schemecode=3151

DSPBR Top 100: http://www.valueresearchonline.com/funds/fundperformance.asp?schemecode=1540

Please look at the performance numbers and also refer the analysis for more details. I would definitely recommend you to refer to MF Year Book by VROL for more information.

Happy Investing !!

 

[lotmanythings]

Now let's do some analysis here asterix. Your notion is for return you need to take risk. Value investing principles don't reckon that so much and a smart fund manager can identify good businesses without considerable risk. That's why I choose a smart fund manager and multi cap.

According to me it is a misconception to say that IDFC Imperial Equity,DSP BR Top 100 has any considerable advantage over my 2 multicap funds even in terms of risk. See their downfalls in 2008 my friend. DSP BR Top 100 just like Quantum LTEF. and HDFC Equity a bit lower at 5%. From this I infer the fund manager is not quite so smart to be 'loved'.

And 1 more thing IDFC Imperial Equity's fund manager has changed April-2010

 

[asterix24]

Ok my disclaimer: I don't love fund manager, definitely not the AMC. I love investing and growth over a long term and the money I ultimately make. I don't know where you got the idea of me loving the fund manager

Coming to our discussion, I have attached a PDF file with this comment.

I have taken the last published portfolio according to Value research online and hence, all the requisite acknowledgements to them.

Setup:
- The top-25 holdings of the 2 multi-cap funds and the 2 large-cap funds are listed and compared.
- Only stocks are compared and not the relative weightage

Analysis:
- Between the 2 Multi-cap funds, 10 stocks overlap (marked in green)
- Most of these stocks are Large cap stocks (I hope you agree) and other stocks are typically mid-cap ones.
- I compared these 2 funds with my suggestions and marked all the overlap stocks in Yellow.
- 12 out of 25 stocks in DSPBR Top 100 match the collection of Large caps across your 2 multi-cap funds. That is almost 50% of the holdings
- Between the 2 Large caps, I have marked the overlap in Red.
- You can observe that there is little overlap between the 2 large cap ones.
- Analysis section of IDFC Premier Equity fund does outline the reasoning behind their performances (Source: VROL)

Hence,

- if there is some much of overlap, isn't it better to just invest in Large Cap funds and separate Mid & Small cap funds with Large and Mid cap and Multi-cap as bridge.

- Do you need 2 large caps with so much of overlap, interestingly most of which is in large cap space?

I would love to hear your views on this.

Happy Investing !!