No Point In Staying With A Laggard For Far Too Long

It is true that the equity market has done pretty much well in the last few years. It is true that long-term investors in stocks are more or less a satisfied lot. It is also true that equity funds of all hues had given fairly decent returns in the recent past. Why then, in this feel-good world, are some sections so obviously disheartened - so clearly unhappy with the kind of returns they have got?

To find the answer to that question, you need not go far. Just check out some of the laggards and the performance they have delivered over three or even five years. Take, for instance, the list of laggards that Value Research so diligently turns out every month. Considering a three-year period (as of September 30), UTI Master Value and LIC MF Equity have both given a modest 30 per cent. Actually, it is even less, but for the sake of simplicity, we will stick to this number. And, that’s not all, given the fact that Birla Dividend Yield Plus, Birla India Opportunities and LIC MF Growth have all given barely more than 30 per cent.

Now, before that figure shocks you more, consider the pedestrian performance dished out over a five-year period by the hikes of UTI MNC, Birla MNC and Kotak MNC. In each case, the score is in the 34-39 per cent range. This, when the best products have given their investors a lot more during this stretch.

Stock-picking strategy

Why does a fund fail to impress when the leading players in its category have handed out superlative performances in comparison? Clearly, the fund manager concerned has slipped up on his stock-picking strategy. (It will pay to remember have that there may be some genuine reasons MNC stocks are not doing too well lately, and this has impacted MNC funds too. Ditto for dividend yield funds, which have mostly turned out abysmal scores in recent times).

Let us now turn our attention to some of the surprises - we are not necessarily referring to the chart busters of the day. Instead, we are talking about some ‘unique products - their singularity derived from the investment themes they nurture. And it so happens that these are decent performers too.

Here’s a small list (in no particular order) of such funds for you: SBI Magnum COMMA, Sundaram BNP Paribas CAPEX Opportunities, DSP Merrill Lynch T.I.G.E.R., Standard Chartered Premier Equity and JM Basic. Several others could have made it to this list, but we are not mentioning all of them here. Coming back to our main topic, the question we wish to ask is this: is there a special reason why investors should stay with any of the poor-performers any longer? While past performance is not strictly a major determinant, we think the answer is a loud No. There is no point in staying with a laggard for far too long, forever hoping that good times will come soon.