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Fund of funds perform better over long tenures

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ALTHOUGH, their numbers are few, equity-oriented, multi-manager fund of funds (FoFs) have not failed to deliver decent returns to investors, which again are not many.

Two FoFs that had a pre-dominant equity exposure and were launched more than five years ago, have both delivered returns better than what the equity market's benchmark index, S&P CNX Nifty, has given in longer time frames of three to five years. Another FoF, which was launched close to three years back, has outperformed Nifty in its one-year and two-year returns. This is revealed in a performance analysis of these funds by Financial Chronicle Research Bureau over the past five years (see chart) based on data from Capitaline NAV database.

These three FoFs — ING 5 Star Multi-Manager FoF Scheme, Kotak Equity FoF and Quantum Equity Fund of Fund — invest in equity funds of more than one mutual fund, keeping an overall equity exposure of more-than-90-per cent consistently over the past one year. The oldest of them, Kotak Equity FoF, has been operational since August 2004, followed by ING 5 Star Multi-Manager FoF in January 2007, and Quantum Equity FoF in July 2009. The first two are benchmarked to Nifty, while the last is bench marked to BSE-200.

As of their net asset values (NAV) on June 26, the longest-tenure, five-year compound annual growth rate (CAGR) of 5.6 per cent of ING 5 Star Multi Manager FoF was higher than Kotak Equity FoF's 3.6 per cent, which exactly matched Nifty's five-year CAGR of 3.6 per cent as on Nifty closing of June 26. In their respective three-year and four-year CAGRs, ING 5 Star Multi-Manager FoF continued to score higher with 9.9 per cent and 7.9 per cent figures, followed by Kotak Equity FoF's 5.5 per cent and 5.7 per cent, and Nifty's 5.4 per cent and 4.4 per cent. Over the past two years, however, Kotak Equity FoF, has delivered returns lower than that of Nifty. Its oneyear and two-year CAGRs of -4.0 per cent and -7.5 per cent has underperformed Nifty, which returned -1.4 per cent and 6.4 per cent CAGRs, respectively. While ING 5 Star Multi-Manager FoF with one-year and two year CAGRs of -5.3 per cent and -0.3 per cent, respectively, continued to outperform Nifty, the new entrant Quantum Equity FoF too, outperformed Nifty with respective CAGRs of -6.2 per cent and -1.0 per cent.

There are three more equity-oriented FoFs, Birla Sun Life Asset Allocation Aggressive, ICICI Prudential Advisor Aggressive and ICICI Prudential Advisor Very Aggressive, having Nifty index as their respective benchmarks, but their portfolios over the past one year tended to have an overall equity exposure of below 80 per cent, with the three funds taking debt exposure of 10 to 20 per cent through investments in debt funds and a gold exposure of 5 to 25 per cent through gold ETFs. Their performance was, therefore, not measured.

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