Vidya Bala
If you thought that 2019 was yet another depressing year for mutual funds, here’s some data to the contrary. In the entire category of open-ended equity funds (excluding hybrid) and gold schemes, nearly one in five funds delivered returns of over 15 per cent. We took 15 per cent as a cut-off, as the Nifty 50 TRI delivered 13.5 per cent.
Wondering which classes of funds managed this feat? It was none other than international funds that earned the top spot in 2019. Let’s first look at the big picture. The data below shows that a good 36 funds that invested in international stocks – directly or through the fund-of-fund (FoF) route – managed an average 26 per cent returns in 2019. That’s a good 13 percentage points more than what the Nifty 50 TRI delivered. This was followed by gold funds that saw a fantastic turnaround in 2019, with an average 22.3 per cent returns. Banking sector funds, after a bad 2018, took the third spot, clocking average returns similar to that of gold. The rest were a small mixed group of equity funds from different categories.
Returns from across the globe
Before you conclude that it must have been US-focused funds that delivered, know that the top performer was the Edelweiss Greater China Equity Offshore fund. This scheme (earlier from the JP Morgan India stable) invests in the parent fund of JP Morgan. The scheme’s returns had declined 18 per cent in 2018, and it managed a turnaround in performance, beating all other global funds available locally.
It was followed by Kotak World Gold fund, a FoF that invests in gold mining companies and gold-related stocks. As has usually been the case, when gold outperforms, the stocks of gold mining companies deliver higher returns than the price of gold.
The Motilal Oswal Nasdaq 100 FoF, which invests in the Nasdaq 100 index’s stocks, outperformed on the back of tech-related shares in this index continuing to outperform for several years in a row. The Nasdaq 100 index houses some of the top innovative companies such as Apple, Google, Intel and Tesla. It has a 54 per cent weightage in technology stocks, followed by 24 per cent in consumer-services and 11 per cent in healthcare.
The above table with the other top performers show that most of the other schemes invested in the US market. However, a number of funds investing in other countries made it to this list too. Franklin Asian Equity (28.1 per cent returns), HSBC Brazil Fund (27 per cent) Edelweiss Emerging Markets Opportunities fund (25 per cent ), HSBC Global Emerging Markets (23.4 per cent) were among the Asian/emerging market investing funds that topped the charts.
Remember, the rupee’s depreciation against the most popular currency used to invest – the dollar – gave an additional three percentage points return in 2019 to investors, over and above the returns from the underlying stock holdings.
The surprise elements
While the European and Japanese markets did well in 2017, they did not outperform the Indian indices. In 2018, too, they struggled to perform. While the Euro zone was battling a general slowdown as well as Brexit-related issues, the Japanese market encountered foreign institutional investor sell-off due to growing global trade wars. However, both these markets bounced back in style during 2019, beating the Indian markets convincingly.
Gold shines
Unrest across the globe – right from Brexit to US-China trade wars to disruptions from Hong Kong to Chile – all led to markets embracing the safe-haven currency – Gold. With some of the global bonds sporting negative yields later part of 2019, even bond investors could well have moved to gold, thus boosting its demand, both from ETFs and bullion traders.
While gold started showing signs of revival in 2018, other categories such as the banking and financial services space made a solid comeback. Similarly, while local real estate continues to be bogged down by debt woes, Aditya Birla Sun Life’s Global Real Estate FoF delivered a stellar 19.6 per cent returns.
Could you have spotted the outperformers?
Now, could you have identified these themes ahead? Very unlikely, if you merely went by past returns. Whether it is the international theme or gold or banking sector, all of these would not have inspired your confidence to invest in end-2018, given their poor performance at that point. Similarly, the top performers in 2018 – technology funds – were nowhere in the scene of outperformance in 2019.
If this be the case, how should you participate in these categories? The answer is diversification. Be it gold or international themes, they can at best be diversifiers in a portfolio. Such diversification is not for delivering high returns but to protect your portfolio when the local markets fail to inspire.
(The writer is Co-founder, PrimeInvestor)
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