InvestorQ : How have the conviction calls on stocks taken by our fund managers during the latest fiscal year worked in practice?
Rutuja Nigam made post

How have the conviction calls on stocks taken by our fund managers during the latest fiscal year worked in practice?

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1 month ago
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The year 2020-21 may have been a big year for the markets and many stocks have doubled and tripled and have even become multi-baggers. The question is how have the high conviction calls given by fund managers done. While we cannot hold fund managers to calls, we can surely hold them to the stocks they have added to their portfolios aggressively in the last 1 year and whether such stocks have outperformed the index or not?

You all must have seen that in Western countries, fund managers struggle to beat the index and just about 15% of the fund managers actually beat the index. Interestingly, the situation is not too different in India this year. For example, in India, mutual fund managers raised exposures to 17 stocks for 4 quarters in succession. However, what is intriguing is that more than 50% of these stocks lagged the returns of Sensex, so you are better off in index funds.

Let us look at examples of stocks that lagged the Sensex but were picked aggressively by fund managers into their portfolios. If you just look at the BSE-500 stocks, then fund managers would be disappointed with stock picks like Zydus Wellness, V-Mart, Page Industries, CCL Products, Fortis Healthcare, Orient Electric and Phoenix Mills. In all these cases, the stocks underperformed the Sensex and Phoenix even gave negative returns.

However, to be fair mutual fund managers did succeed in catching some winners too. Take the case of stocks like IEX, Just Dial and Birlasoft. In all these cases, the MFs had raised their stakes but the stocks have also outperformed the Sensex by a huge margin. There are two things to note here. Firstly, 1 year is too short a time frame and we have to see 3 to 5 years. Secondly, over a period of time, such calls would eventually even out for invetsors.

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