Markets are on a high, but why is your fund NAV is still away from peak?Markets are rising and making new highs but some unfortunate investor portfolios are not showing similar results. The Sensex is nearly at 40,000 while the Nifty is flirting with the 12,000-mark. Is your fund portfolio away from its highs, and you are unable to understand the phenomenon?

Let us explain why this could happen. The reasons could be three-fold: your MF portfolio is concentrated in a few funds all of whom are not performing well; your funds do not have the same stocks that are powering the Sensex/Nifty rally, or your portfolio has a lot of mid and small-cap funds that have had a forgettable time for some time now. Read on to know more.

Dud crowd

Did you know that there are as many as 50 equity funds who are 10-30% away from its 52-week high? For instance, the Net Asset Value (NAV) of HSBC Infrastructure Equity Fund is 28.5% away from its one-year high NAV hit in mid-January this year. Kotak PSU Bank ETF is 19% away from its 52-week high. Aditya Birla Sun Life Small Cap Fund is similarly 14% adrift from its one-year peak NAV. So if your money is riding on such schemes, then the resultant portfolio value will be a lot less than the high-mark you expect to see, amid otherwise roaring stock indices. Typically, international funds, schemes with PSU bank stocks, small-cap funds, mid-cap funds, and value-oriented fund categories are the ones who are not in sync with overall market buoyancy. So, tough-luck if your MF portfolio is filled with such duds.

Lack of power

It is no secret that large-cap funds have done exceedingly well over the past few months. But what if your large-cap oriented fund is not doing as well? There is a simple explanation. There is a category of funds called large and mid-cap. With a minimum 35% investment in large-cap companies and minimum 35% investment in mid-cap companies, such funds can be exposed to the downdraft due to mid-cap allocation. Take, for example, Reliance Vision Fund which is down over 13% from its one-year highs. Even though the Nifty Large Midcap 250 TRI is up 16% in last 12 months, the fund has stayed flat. Similarly, even if funds like BOI AXA Large & Mid Cap Equity Fund, Tata Large & Mid Cap Fund and Essel Large & Midcap Fund have exposure to large caps, their mid-cap exposures may have compelled them to underperform.

Narrow street

As an investor, you also must understand the narrowness of the current rally which is pushing up indices to newer highs. Usually, when a majority of stocks rise, the index goes up. However, this time around the rally is being driven by a handful, say 6-7 stocks. While this is not abnormal, it is a different trend. In fact, since 2015 this is one of the most concentrated performances that the market has seen. Hence, your funds, which do not have these 6-7 rally-powering stocks, will give you an impression of not doing much even though the headlines in newspapers and TV channels scream ‘Markets Hit New High’.

Concentrated stock performances happen when you take concentrated bets. But, there are risks from a concentrated strategy given that getting the exact group of stocks that will turn out to be future winners is an arduous task.

Staff Writer

This article is written by RupeeIQ editorial staff.