Stocks to buy: 10 equity funds that have outperformed benchmarks during volatility Let's identify 10 equity funds that have outperformed benchmarks during volatile trading days
Volatility has intensified since the beginning of October 2024, as evident from the jump in the India VIX index, which gained over 33% between 1 October and 21 November 2024. The index retreated from a high of 16.69 in the first week of November, the levels seen in early August. The value of the index on 21 November was 15.99.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} The FPIs continue to be sellers amid rising US bond yields (amid expectations of rising fiscal deficit due to Trump policies), a strengthening USD index, and stretched domestic market valuations. In 2024, the FPIs sold Rs.21,266 crore of net equities (up to 21 November), according to the NSDL data. The US 10-year bond yields currently stand at 4.42%, compared to 3.73% in early October. Meanwhile, the dollar index has gained over 5.7% during the same period.
A jump in consumer and wholesale price inflation in October and earnings downgrades for most stocks have also contributed to the market volatility. The factors that impacted the Q2 performance and led to the earnings downgrades include slowing consumption, asset quality stress in parts of the BFSI sector, and subdued government spending in the first half of 2024-25.In the current scenario, equity diversified funds can prove effective as risks (unsystematic or company-specific) can be managed through diversification. It is good to identify equity funds that have done well in the past phases of high volatility. We studied the data for past three years, from 14 November 2021 to 14 November 2024, to identify phases of high market volatility using the India VIX index.
The data has been sourced from ACE MF.
The weekly rolling change in the VIX index was calculated for all trading days from 14 November 2021 to 14 November 2024. Of the 747 trading days, 339 (45.4%) saw weekly changes exceeding the three-year average, indicating high volatility. Nearly 139 equity diversified funds (over three years old) were analysed by comparing their weekly rolling returns (based on daily NAVs) with their benchmark indices. The weekly returns of the funds and their respective benchmarks were analysed for the study period (339 days’ high volatility period).
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The funds that outperformed on the majority of days were identified. Outperformance is defined as the fund’s weekly return being more than the benchmark (and the negative return being lower than the negative return of its benchmark) on a given day. A ratio is worked out by dividing the number of days the fund has outperformed its benchmark by the total number of days when the volatility was high (339 days). For example, if a fund has a ratio of 0.56, it implies that the fund outperformed its benchmark on 56 out of every 100 volatile days. The funds were sorted in descending order of the ratio and the top 10 funds were selected (see table). In terms of sub-categories of the selected 10 funds, four funds are from the large- and mid-cap category, two funds are from the large cap category, two from the mid-cap category and one each from the small-cap and flexi-cap categories. The selected 10 funds have a ratio between 0.58 and 0.68. The aggregate AUM of these 10 funds stood at Rs.2.8 lakh crore at the end of October, and grew by 71% year-on-year. Comparatively, the aggregate AUM of all equity diversified funds grew by 55.2%.
Equity funds that have performed well in volatile phases
Most of the selected funds have done well in terms of risk-adjusted returns in the past three years. While nine out of 10 funds have a Sharpe ratio higher than the average ratio of all equity diversified funds, all 10 funds have generated positive alpha, with nine out of 10 funds having alpha higher than the average. Also, nine out of 10 funds have Sortino ratio higher than the average.
Sharpe ratio measures the excess return (return over risk-free rate) that a fund generates relative to the total risk, whereas Sortino ratio measures the excess return relative to the downside risk. A similar outperformance has also been visible in the past year. The risk-adjusted performance measures (on the selected 10 funds) have been worked out for the full three-year period as opposed to the 339 high volatile days applicable for the fund selection/identification.
In terms of point-to-point returns, all 10 funds have outperformed their benchmarks across three months, six months, one year and three years. The selected funds have also delivered healthy returns in SIP mode over the past three years. Nearly eight out of 10 funds have XIRR (or SIP returns) higher than the average SIP returns of all equity diversified funds between November 2021 and November 2024.
The expense ratio (annual fees charged by AMC) of eight out of the selected 10 funds was lower than the average expense ratio of all equity diversified funds (data for October 2024). A lower expense ratio indicates lower investment costs. As of October, ICICI Bank, ITC, Infosys, Aurobindo Pharma, and Mahindra & Mahindra are among the top holdings in these selected funds. The favoured sectors include banking & finance, healthcare, automobiles, oil & gas, and power.
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This story originally appeared on: India Times - Author:Faqs of Insurances
