[whitewing]

Originally Posted by pradkumar

I have not invested in any international equity funds so far. I want to hedge my risk by investing in one fund at least. I am looking at US stocks mostly.
...

I was having similar thoughts, and given the current trend in the indices - due to the virus scare- was thinking would probably be a good time to incrementally put in some money.

Given that some funds have fund managers with <1year experience, was more inclined to look at the feeder funds like the one from Franklin.

[nasa_hubble]

Some say that passive investing will give you average returns, which is just clever wordplay. Index fund return is the benchmark return minus the expense ratio of that index fund. To consider an active fund to be good, it should atleast beat the benchmark plus earn their active fund management fees to make more profit than a passive fund.

Not all active funds beat the market all the time and it is impossible for an active fund manager to beat the benchmark every year for extended periods. Many will remember the million dollar bet Warren Buffet made to all hedge fund managers.

Now the question that arises is that how does one choose a fund which will provide good returns. Smartcat has laid out in concise how to go about choosing active funds but there is one thing that we do not discuss, known as survivorship bias. In any list that you choose from today, bias is present due to the fact that we are only going to choose from existing well to do funds and have completely excluded funds that have shut shop in the same period. What if the well to do fund you choose today performs bad from now on? We do not know what funds will remain after 10 years. If they are not there, it is because they could not perform well.

In a way we do not know if the fund we choose today will change the fund manager, the SEBI classification will change, AMC will shut shop, etc. Therefore by investing in a passive fund one will reduce a lot of variables that can affect active funds.

Also, as mentioned in earlier posts that buying passive funds creates a bubble and increases the share price more that what it is worth I would only say, if someone wants to invest money we cannot stop them from it. The bubble (if you want to call it that) is not due to passive investing it is due to less stocks in the Indian market. The US has 500 largecaps, India has only 50 or so. I think it affects individual stock pickers the most as they then find good stocks too expensive to buy.

Founder of Vanguard, Jack Bogle said that all the market participants combined own the whole market, which is what is essentially passive investing. Owning the market.

[karansm4u]

Hi folks,
Need a quick advise. Right now I am 35 year old, as of now I do not have any home loan, car loan, personal loan etc since I have already purchased house, cars and finished their loans.
So financially settled to good enough extend. These SIP are mainly for long term for kids education, marriage etc. I have taken service of a financial planner and based on my long term goals we have charted out the plan and investing good amount of money in below 3 funds.

1) Mirae Asset Emerging Bluechip (Direct)
https://www.valueresearchonline.com/...nd-direct-plan
Equity: Large & MidCap

* 25% of my SIP is going into this fund.

2) Kotak Coorporate Bond Fund

https://www.valueresearchonline.com/...n-direct-plan/
Debt: Corporate Bond

* 30% of my SIP is going into this fund

3) Axis Focused 25
https://www.valueresearchonline.com/...nd-direct-plan
Equity: Multi Cap

* 45% of my SIP is going into this.
* All lum-sum purchase when market is going down are also done in this fund.


So overall I have 70:30 ratio for equity:debt. My investment plan is long term (10 year +). Now question I have are following

1. Does portfolio looks diversified enough?
2. Since Mirae Asset Bluechip do not accept lum-sum payment so in terms of equity portion, its accumulating majorly in Axis Focused 25. Is this a risk factor?(Maybe answer of this question is also largely related to answer of #1)
3. There is no small or mid cap. Any feedback on this?

[pradkumar]

I was also looking at Franklin Feeder funds because the AUM is the highest at some 1300 crore. Not that the AUM matters so much, but gives you the confidence that there are some people in the same boat. The AUM of other international funds is anywhere between 300 to 400 crore. It makes you wonder whether people have given up on international funds already.

Anyway, the return of this fund is just around 12 to 16%. Makes you wonder whether taking a risk with rupee vs dollar appreciation and then the debt fund like taxation method is worth it. There is not much underlying data available to do some research. The more I look at it, the more confused I am.

An ETF would have made more sense, but ETF has liquidity issues. There was an article from Pattabhiraman about why you should not invest in Motilal Oswal Nasdaq 100 ETF. Do a Google search to find it.

Thanks,
Pradeep

Originally Posted by whitewing

Given that some funds have fund managers with <1year experience, was more inclined to look at the feeder funds like the one from Franklin.

[srsrini]

Originally Posted by pradkumar

2) I was also looking at other options that have complete exposure to US stocks such as ICICI Prudential US Bluechip Equity Fund (launched in 2012), Nippon India US Equity Opportunities Fund (launched in 2015), and Motilal Oswal NASDAQ 100 ETF (launched in 2011). Despite these funds being there for quite some years, none of them are rated by Value Research or Morning Star India. More importantly, all these funds score High on the Riskometer. How does one proceed in such a case?

Please note this: You would do yourself more harm than good if you follow the star ratings. There are a lot of criteria for the ratings. Heck, VRO gives more stars to the regular plan in large cap funds and fewer stars to the direct plan of the same fund.

These invest in equities and hence the riskometer is high. Indian tax laws treat them as non-equity funds.

[SmartCat]

Originally Posted by nasa_hubble

Now the question that arises is that how does one choose a fund which will provide good returns. Smartcat has laid out in concise how to go about choosing active funds but there is one thing that we do not discuss, known as survivorship bias. In any list that you choose from today, bias is present due to the fact that we are only going to choose from existing well to do funds and have completely excluded funds that have shut shop in the same period. What if the well to do fund you choose today performs bad from now on? We do not know what funds will remain after 10 years. If they are not there, it is because they could not perform well.

Good point. But survivorship bias exists in index funds too. Some people invest in index funds because it has done well between 20XX and 20YY. But then, an investor in index fund does not really escape the "future underperformance" problem at all. As I have pointed out before, an index can be stuck in a broad range for 4 to 12+ years. Here is the smallcap index, back to 2008 levels. 12 years, zero returns.



Meanwhile, it is almost impossible to find an actively managed mid or smallcap mutual fund with zero returns in the past 12 years.

When picking managed funds, the shortlist/guidelines I mentioned before - brand name, large AUM, long history etc - helps a bit. The fund house is likely to pay lot of attention to a 20 year old fund with Rs. 20,000 cr in assets, when compared to a 2 year old fund with Rs. 1,000 cr in assets. Anyway, the only real solution to this problem is diversification across different funds. If you have an underperformer, perhaps SIP can be stopped in such fund and a new fund can be picked.

[whitewing]

Originally Posted by pradkumar

....
The more I look at it, the more confused I am.
.....

I'm in the same boat, unable to makeup my mind.

Originally Posted by pradkumar

An ETF would have made more sense, but ETF has liquidity issues. There was an article from Pattabhiraman about why you should not invest in Motilal Oswal Nasdaq 100 ETF. Do a Google search to find it.

Thanks. Did a quick read, not able to co-relate the described returns in the article to the fund house. I guess will give it a more detailed look the next weekend.


Link to the article:https://freefincal.com/motilal-oswal...-fund-of-fund/

[carboy]

Originally Posted by pradkumar

An ETF would have made more sense, but ETF has liquidity issues. There was an article from Pattabhiraman about why you should not invest in Motilal Oswal Nasdaq 100 ETF. Do a Google search to find it.

Motilal Oswal also has a non-ETF regular Mutual fund for Nasdaq 100 Index

[hondaford]

Originally Posted by ashokrajagopal

See, the passive investing makes sense only when a small percentage of people are doing it. By definition, passive means you are not making a dent in the whole market pricing equation as opposed to active investing where you pick a theme.
More passive investors means more money flows on to the indexes which are created, which is essentially actively steering cash flow into these specific stocks. Before they release new ETFs they actually do a lengthy analysis so the index looks good and promising. Once it is released, the cash flow automatically reinforces this and that sort of shapes the prices to go only in one direction.

It would reach a point where more inflow means they buy more stocks, and more outflow means they sell. In the event of a downturn in the market, there would certainly be a chain reaction of more outflow and that can drive to all kinds of panic. Also must add the fixed inflow like Pension plans etc that are going into these indexes -- what happens when/if these flows stop ?

Sir, with all due respect, this does not make sense at all.

Forget active or passive. When there is too much money floating around, all assets including stocks and property will have unrealistic valuation.

If one thinks valuation is unrealistic, then it is better to stay out of the market. Passive or active is immaterial.

[pradkumar]

Yes. It was started a year back. As a result, there is not much data on it. It tracks the ETF. Because of the currency fluctuations and the inherent ETF tracking error, it might be a little more skewed than the Nasdaq 100 it is based on. I am still researching.

Thanks,
Pradeep

Originally Posted by carboy

Motilal Oswal also has a non-ETF regular Mutual fund for Nasdaq 100 Index

[hondaford]

Originally Posted by SmartCat

Good point. But survivorship bias exists in index funds too. Some people invest in index funds because it has done well between 20XX and 20YY. But then, an investor in index fund does not really escape the "future underperformance" problem at all. As I have pointed out before, an index can be stuck in a broad range for 4 to 12+ years. Here is the smallcap index, back to 2008 levels. 12 years, zero returns.

Sir, I agree small AUM has disadvantages as a managed fund has fixed costs, salaries, etc.

But imagine a 20,000 cr fund. Let us say, the top holding of the fund at 3% of the fund portfolio i.e. 600 cr is ABC Motors. If there is bad news on ABC, the fund manager has a tough time exiting quickly. He cannot dump the stock in the market as the price will drop even more.

So after a while, a big AUM can be a disadvantage to an actively managed fund.

Also, for the chart, can we add any of the active funds which have outperformed the index for the same duration?

[carboy]

Originally Posted by pradkumar

Yes. It was started a year back. As a result, there is not much data on it. It tracks the ETF.

Hmm. Didn't realise it tracks the ETF. I thought it tracked the Index.

If it tracks the ETF, then what will be investing price & redemption price? Will it be the NAV of the ETF or will it be the market price of the ETF?

[hondaford]

Originally Posted by pradkumar

I was also looking at Franklin Feeder funds because the AUM is the highest at some 1300 crore. Not that the AUM matters so much, but gives you the confidence that there are some people in the same boat. The AUM of other international funds is anywhere between 300 to 400 crore. It makes you wonder whether people have given up on international funds already.

Anyway, the return of this fund is just around 12 to 16%. Makes you wonder whether taking a risk with rupee vs dollar appreciation and then the debt fund like taxation method is worth it. There is not much underlying data available to do some research. The more I look at it, the more confused I am.

An ETF would have made more sense, but ETF has liquidity issues. There was an article from Pattabhiraman about why you should not invest in Motilal Oswal Nasdaq 100 ETF. Do a Google search to find it.

Thanks,
Pradeep

Are you allowed to buy an ETF listed on the U.S. exchange directly through an online stock broker? Then you do not have to worry about the FOF AUM and liquidity issues.

What are your views on INR vs USD? Will INR appreciate? Then holding USD assets may not be beneficial. If it is the other way around, then you will gain by holding your money in USD.

[SmartCat]

Originally Posted by hondaford

Let us say, the top holding of the fund at 3% of the fund portfolio i.e. 600 cr is ABC Motors. If there is bad news on ABC, the fund manager has a tough time exiting quickly. He cannot dump the stock in the market as the price will drop even more.

Yeah, I think many smallcap funds stop accepting new investors beyond a limit. But fund size is not an issue for large and midcap funds. Fund managers usually do not invest heavily into stocks with poor liquidity.

Also, for the chart, can we add any of the active funds which have outperformed the index for the same duration?

You can do it yourself at valueresearchonline.com. You can select the exact date duration too.

Originally Posted by hondaford

What are your views on INR vs USD? Will INR appreciate? Then holding USD assets may not be beneficial. If it is the other way around, then you will gain by holding your money in USD.

As long as imports are more than exports, INR will continue to depreciate against USD. Going by past history, USD has appreciated by approximately 3.5% per year against INR over the past 20 or 30 years.

[hondaford]

Originally Posted by SmartCat

You can do it yourself at valueresearchonline.com. You can select the exact date duration too.

Attachment 1975616

Thank you, Sir, for the chart source. Will try it out, and am sure many more will benefit.

Exactly the point that carboy was making. From 2009 to 2012, one would have wasted money with Kotak. They could not beat the index. They are doing a better job from 2012 to 2020 however.

The point is - an active fund manager cannot "consistently" beat an index over a long duration of time. If so, then why should we pay the active manager 1.5- 2% a year?

Your chart illustrated it beautifully