Should we give more importance to last 1/3/5 years performance while selecting funds?

[arroy_0209]

Past performance of a fund may or may not be sustained in future due to market forces. However we all look at past performance for CONSISTENCY of a fund. The problem I sometimes face is performance of two funds may be quite different over last 1/3/5 years. In such cases for how many years the performance should be considered? I do not know how to compare perform for more than 1 year at VROL but at investmentyogi site this is possible. Now consider comparing perform of HDFC equity, HDFC Top200, Reliance Reg Saving equity over last 1, 3 and 5 years. You will see over last 1 year, in terms of return, HDFC Equity (25%)>HDFC TOP200(21%)> Reilance REg Savings equity(12%), whereas over last 5 years Reliance Reg Savings(25%)>HDFCTOP200(20.4%)>HDFC Equity(20.3%). Of course there are other factors to be considered (like expense ration but that is not much different for the funds over last 1 year), since return alone can not be sole criterion, but how do I decide how many years should the performance be tracked?

Particularly, since market crashed about 3 years ago, how should this fact affect our decision about looking at 1/5 years performance?

 

[asterix24]

Re: Should we give more importance to last 1/3/5 years performance while selecting fu

Hi Roy,

Your question is a truly fantastic one and one that a lot of us investors face. These numbers are good indicators and provide you with the first level of guidelines to choose a fund.

I will answer one of your queries on the market crash. Personally, I would be looking at how much less did the fund crash as compared to Sensex and how it has rewarded and how fast once the bull market set-in. This is definitely one of the factors in choosing a fund.

A key aspect is the portfolio of a fund. More often than not, most of these funds have an identical or almost identical sectoral exposures. However, the choice of individual stocks, contribution of top 3 sectors, top 5 stocks etc also have some influence. Of course, most of the funds have an almost identical ball-park for these too

In general, if more than one of the above factors are similar, rely on the analysis from some reputed sites like VROL or Outlook Money and then take an educated call.

Happy Investing !!

 

[xxdiesel]

Re: Should we give more importance to last 1/3/5 years performance while selecting fu

I personally look at the Alpha and Beta, together with performance. Say, while comparing Reliance Pharma and Franklin Pharma fund; I noticed that Franklin has a much higher Alpha and a lower Beta. That's a good enough indicator for me as the performance varies across 1, 3 and 5 years.