Lately, you may have noticed schemes of the same fund house doing well or poorly at the same time.
For example, over the last one year, most of Axis’ schemes have underperformed, while Quant’s schemes are topping the charts.
A thread🧵on why this happens and what to do.
For example, over the last one year, most of Axis’ schemes have underperformed, while Quant’s schemes are topping the charts.
A thread🧵on why this happens and what to do.
The numbers may surprise you.
In 2022, @AxisMutualFund ranked at the bottom of their respective categories.
Despite being in different categories with different mandates, their performance rankings are similar.
In 2022, @AxisMutualFund ranked at the bottom of their respective categories.
Despite being in different categories with different mandates, their performance rankings are similar.
On the other hand, many @quantmutual funds have been toppers across categories.
@hdfcmf AMC’s funds have seen a similar trend.
After being laggards for quite some time, they have made their investors happy with their recent top-quartile performance.
After being laggards for quite some time, they have made their investors happy with their recent top-quartile performance.
But why does it happen?
Do all funds invest in the same stocks?
Actually, yes. There is a lot of overlap in the portfolios of the schemes of the same fund house.
So, investing in the same stocks results in similar performance.
Let’s look at the numbers for these 3 fund houses.
Do all funds invest in the same stocks?
Actually, yes. There is a lot of overlap in the portfolios of the schemes of the same fund house.
So, investing in the same stocks results in similar performance.
Let’s look at the numbers for these 3 fund houses.
We checked the allocation to the same #stocks held by different schemes of a fund house.
For filtering, we took stocks which are held by at least 3 out of the 5 schemes for each fund house.
For filtering, we took stocks which are held by at least 3 out of the 5 schemes for each fund house.
In the case of #Axis MF, at least 70% of the assets of Axis Bluechip, Axis Flexi Cap and Axis Long Term Equity are invested in the same set of stocks.
In the case of Axis Growth Opportunities and Axis Multicap, allocation to these stocks is not that high
In the case of Axis Growth Opportunities and Axis Multicap, allocation to these stocks is not that high
Three of HDFC’s funds, viz., Flexi Cap, Taxsaver and Top 100, have a significant overlap
In the case of Quant MF, the portfolio overlap is quite high
Data shows that at least 70% of the portfolio is in the same stocks as of Feb 2023
Data shows that at least 70% of the portfolio is in the same stocks as of Feb 2023
The above three examples show that schemes of the same fund houses are likely to have portfolio overlaps
Let's look at the reasons now
Let's look at the reasons now
Reason 1: Defined stock universe
The overlap can happen because SEBI has defined the stock universe
Large cap = Top 100 stocks by market cap
Mid cap = Next 150 stocks
Small cap = Next 250 stocks
So, every scheme has to choose stocks from this defined group
The overlap can happen because SEBI has defined the stock universe
Large cap = Top 100 stocks by market cap
Mid cap = Next 150 stocks
Small cap = Next 250 stocks
So, every scheme has to choose stocks from this defined group
Reason 2: Similarity in mandate
The defined universe may lead to an overlap when there is a similarity in mandate
For example, flexi-cap and ELSS funds can invest in all types of stocks
Therefore, a fund house can run its tax-saving fund like its flexi-cap fund
The defined universe may lead to an overlap when there is a similarity in mandate
For example, flexi-cap and ELSS funds can invest in all types of stocks
Therefore, a fund house can run its tax-saving fund like its flexi-cap fund
Another example: large-cap funds and large- & mid-cap funds
Both have to invest a fixed percent of their assets in large-cap stocks
A fund house can also run its flexi-cap fund like a large-cap one depending on the fund manager’s view
Axis Flexi Cap Fund is one such case
Both have to invest a fixed percent of their assets in large-cap stocks
A fund house can also run its flexi-cap fund like a large-cap one depending on the fund manager’s view
Axis Flexi Cap Fund is one such case
Reason 3: Stock-selection philosophy
Fund houses have an investment philosophy for selecting stocks
It is unlikely to change as per categories
Therefore, overlap can’t be avoided
Though it can be reduced
Fund houses have an investment philosophy for selecting stocks
It is unlikely to change as per categories
Therefore, overlap can’t be avoided
Though it can be reduced
Portfolio overlaps are unavoidable
But what can you do to avoid it?
It will be beneficial to diversify across fund houses.
But there’s one exception: Passive funds.
Diversification across fund houses is of little importance if you invest in passive funds.
But what can you do to avoid it?
It will be beneficial to diversify across fund houses.
But there’s one exception: Passive funds.
Diversification across fund houses is of little importance if you invest in passive funds.
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