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Citrus Analysis: Performance and AUM: the link remains strong
Fri, Jul 27, 2012
Source : Shoaib Zaman, Citrus Interactive

A fund’s performance and its assets under management (AUM) do not always move in tandem. Sometimes, a fund gives positive returns, and hence is rewarded with higher AUM as investors climb on to its bandwagon in order to profit from its positive performance. Sometimes, it may also be the case that a fund gives negative returns, and yet its AUM surges. This may happen because existing investors continue with their SIPs (systematic investment plans) or new investors put money into the fund despite its poor near-term performance because they have faith in the fund’s long-term prospects.  

At Citrus Advisors, we did a study recently to see how many funds have truly earned their higher AUMs over the last one year, i.e., they received higher AUMs because they performed well. Or were funds merely resting on the laurels of their past performance?

Performance positive, AUM up

Despite the markets yielding negative returns (the Sensex was down 7.10 per cent during the one-year period leading up to June 30, 2012), 21 funds yielded positive returns during this period. Some of these funds were international funds operating in markets such as the US that gave positive returns. Others were sectoral funds that benefited from the upsurge in their sector despite the negativity in the overall market.

Though both their performance and AUMs rose, the increase was not always of the same magnitude. The difference in level could have been due to various reasons: issue of bonus units, inflow of new money, or withdrawal of investments.

Motilal Oswal MOSt Shares NASDAQ-100 ETF was the best-performing fund across the equity space. It gave a return of 35.44 per cent. The fund’s benchmark, the Nasdaq 100 index, rose by 10 per cent during this period. The fund’s performance has been better than that of its index partly because of the rupee’s depreciation. However, the fund's AUM rose by only 13.44 per cent.

Another fund that gave a positive return during this period was SBI Magnum FMCG: it rose 24.75 per cent over the last one-year period leading up to June 30, 2012. For its performance the fund was rewarded with an increase in AUM of 46.21 per cent. The fund's performance was aided by the fact that the FMCG index also gave a good return of 21.90 per cent over this period.

UTI Opportunities Fund’s AUM increased from Rs 1,575.52 crore in June 2011 to Rs. 2,779.78 crore in June 2012 even though the fund gave a return of only 2.34 per cent.

 

Performance positive, AUM up

Scheme Name

AUM change (Rs crore)

AUM change (% )

1-yr return

Index

Index return (%)

Motilal Oswal MOSt Shares NASDAQ-100 ETF

6.91

13.44

35.44

Nasdaq-100 (DRM)

10.53

SBI Magnum FMCG

46.21

90.97

24.75

BSE FMCG

21.9

SBI Magnum Emerging Businesses

251.84

64.78

8.52

BSE-500

-8.55

Reliance Equity Opportunities

441

14.54

1.09

BSE-100

-7.34

UTI Opportunities

1,204.26

76.44

2.34

BSE-100

-7.34

As on  - 19-Jul-2012 

 Performance negative, AUM up

Over the last one year, that is between June 2011 and June 2012, 55 out of a total of 350 equity funds gave negative returns, yet saw an increase in their AUM. It is important to note that during the one-year period leading up to end-June 2012, the market gave negative returns (the Sensex was down -7.10 per cent).

The leader of this pack was ICICI Prudential Focused Blue Chip Equity. Its AUM saw a net increase of Rs 1,296.25 crore from Rs 2,545.23 crore in June 2011 to Rs 3,841.48 crore in June 2012. This was against the fund's one-year return of -2.48 per cent. A word of caution is warranted here: though the fund's return was negative, it was not an underperformer since its benchmark fell even more – by -6.28 per cent over the same period.

Similarly, Tata Growth’s AUM increased by Rs 161.16 crore over the same period to Rs 205.73 crore though it gave a negative return of -3.58 per cent.

Kotak Select Focus’ AUM rose to Rs 364.91 crore, registering an increase of Rs 275.65 crore. Over the one-year period ending June 30, 2012, it gave a return of -4.61 per cent.

 

Performance negative, AUM up

Scheme Name

AUM change (Rs crore)

AUM change (% )

1-yr return

Index

Index return (%)

Tata Growth

161.16

361.6

-3.58

CNX Midcap

-10.24

Kotak Select Focus

275.65

308.83

-4.61

S&P CNX Nifty

-6.28

HDFC Mid-Cap Opportunities

577.43

40

-2.07

CNX Midcap

-10.24

Franklin India Blue-chip

855.71

21.29

-1.99

BSE SENSEX

-7.12

ICICI Pru Focused Blue Chip Equity

1,296.25

50.93

-2.48

S&P CNX Nifty

-6.28

As on  - 19-Jul-2012 

 Performance positive, AUM down

Twenty-one funds suffered a loss of AUM even though their performance was positive. This could have been due to withdrawal of money in an adverse market or investors deciding to book gains.

The foremost example of this category is ING Global Real Estate. This fund gave a return of 24.24 per cent over the last one year, yet its AUM decreased from Rs 46.93 crore in June 2011 to Rs 42.57 crore for June 2012. The fund’s mandate is to invest primarily in small, mid and large-cap stocks of companies that own, operate, develop or manage real estate in different countries, including the US.

The fund scheme that saw its AUM shrink the most was IDFC Asset Allocation Aggressive. Its AUM fell by Rs 106.30 crore although it gave a positive return of 3.46 per cent during the period.

 

Performance positive, AUM down

Scheme Name

AUM change (Rs crore)

AUM change (% )

1-yr return

Index

Index return (%)

IDFC Asset Allocation

-106.3

-47.15

3.46

Crisil Balanced Fund Index

-1.17

JPMorgan JF Gr China Eq Off-Shore

-47.41

-32.7

1.63

-

-

GS Hang Seng BeES

-38.32

-65.25

13.41

Hang Seng

-10.75

ING Global Real Estate

-4.37

-9.3

24.24

-

-

Kotak Contra

-0.94

-1.42

0.69

S&P CNX 500

-8.18

As on  - 19-Jul-2012 

 Growth negative, AUM negative

By and large, however, the link between performance and AUM held strong within the mutual fund industry over the one-year period. 250 equity funds gave negative returns over the last one year and paid the price for their negative performance with erosion in their AUMs.  

Reliance Growth witnessed the maximum loss of AUM: its AUM shrank from Rs 6,958 crore to Rs 5,557 crore, although the fund’s NAV declined by only -7.11 per cent. This large erosion may have been the result of a popular fund paying the price for failing to live up to popular expectations.

The fund that gave the highest negative return in this list was Sundaram-Select Thematic Funds-Entertainment Opportunities. It gave a return of -25.03 per cent whereas its AUM declined by 40 per cent to Rs 31.91 crore.

 

Growth negative, AUM negative

Scheme Name

AUM change (Rs crore)

AUM change (% )

1-yr return

Index

Index return (%)

Reliance Growth-Ret

-1,401.00

-20.14

-7.11

BSE-100

-7.34

Reliance Diver Power Sector

-1,195.00

-35.12

-22.34

-

-

ICICI Pru Infrastructure

-939.8

-33.04

-13.77

CNX Infrastructure

-21.73

Sundaram-Select Thematic Funds-Entertainment Opportunities

-21.96

-40.77

-25.03

-

-

GS S&P Shariah BeES

-0.06

-6.82

-7.21

S&P CNX Nifty Shariah Index

-7.95

As on  - 19-Jul-2012 

For investors, our suggestion is that they should not be disheartened by negative returns in their funds and pull out their money. Instead check how your fund performed vis-a-vis its benchmark and category average. If it declined less than these two yardsticks, then it has provided sound downside protection. Hold on to that fund even though its absolute return may be negative.

Next, we shall look at momentum effect: whether a strong performance in the preceding year has a rub off effect on AUM growth in the near future.





 
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