Value Oriented Funds: Talking about the last 1 to 2 months, the value funds have performed well and the value index has outperformed the broader market in terms of returns. However, some experts are not very enthusiastic about the return of the value theme and they believe that after the strong rally of the previous days in the market, there is no more growth in them. But some experts say that investors should move ahead with the value theme at the present time. Because now, not only in India but also around the world, stressed valuation is a serious concern.
Market cap-to-GDP ratio
The market cap-to-GDP ratio in the US has already crossed the 180 mark. The performance of the IPO market has been strong. Recently, there has been a strong listing of IPOs of many companies. The market-cap-to-GDP ratio in India has already reached a decade high. In such a situation, we thought about evaluating the performance of value oriented mutual funds here, how many of them have benefited from the rise in value stocks.
Data as on December 10, 2020 (Source: ACE MF)
What did you get in rating
Value funds outperformed the NSE 500 Total Return Index (TRI) in terms of returns during the last 1 month. This has also led to an improvement in the 3-month returns of value funds. Some value funds such as IDFC Sterling Value Fund benefited from the rally in mid and small caps. Some other funds also gave higher returns than the broadcaster market. Funds based on banking, mining, capital goods companies and utility companies have also had better returns.
However, a question may arise as to why no value fund has left S&P BSE Enhanced Value Index behind in giving returns. The answer lies in the composition of the index itself. His investments are in mining companies, PSUs, auto companies and banks. All of them performed better in the past. But due to continuous poor performance in the last few years, no fund has high exposure to them.
What should investors do?
Value funds have really tested the patience of investors for a long time. In such a situation, when the returns have started in the value fund, the reaction of many investors may be that they should book profits. But what is convenient is not necessarily always right. Right now the stock market is at its record high. In such a situation, instead of essentially redeeming the value oriented fund, you should re-evaluate your entire mutual fund portfolio at this time.
Keep in mind: when to get rid of funds
When its piers are performing well in the same fund category, then the returns of your fund are getting weaker.
Now the fund has no role in your overall asset allocation.
When one starts taking undue risk to get returns.
When there is a considerable deviation from the indicative allocation.
(Note: Fact Check observation & analysis by Mr. Juzer Gabajiwala, Director, Ventura Securities)