- What about multi-cap and flexi-cap? I hear that the new mandate says that multi-cap has to 25% each in large, mid, and small caps. And how do they categorize funds which go outside India to the likes of GOOG, or AAPL for the 35% chunk of investments (PPFAS fund, for example). And flexi-cap is still entirely flexi, I presume.
- As for people labeling themselves - I think it makes life simpler. Each category is already quite complex as it is. Even traditional P/B type value investors need to spend ages understanding what works and what does not. Figuring out that 12_1 momentum works, but 24_1 momentum doesn't work takes years of research. So, if someone wants to play in a smaller field, I presume they want to go deeper in that field - or they want to stick to that field for investing, and spend the rest of their time watching movies or doing something else that they care about.
There are ~40 large-cap funds. You'll always find a few beating benchmarks after the fact. Transport yourself to Jan 2018 (after SEBI's classification went into effect) and ask yourself which funds you would've picked without this look-forward bias. It's impossible with discretionary funds.
A biggest sign of maturity an asset manager can display is negotiating the right mandate and benchmarks. Had written about this previously:
There is no "there" there in investing. You snooze, you lose. Till the 1960's, the ratio between the dividend yield of stocks vs. bonds was a reliable switch signal. Whenever dividend yields slid to approach bond yields, as they did in 1898 and 1929, stock prices fell or bond prices rose such that the relationship between the one type of yield and the other was maintained. Then, no more.
Capital keeps getting cheaper and more widely available. Analytical tools, computational power, etc. keep advancing. Knowledge banks keep getting easier to access.
A few counterpoints.
- Equity large cap since 2017: https://www.valueresearchonline.com/funds/selector/category/100/equity-large-cap/?end-type=1&plan-type=direct&exclude=suspended-plans&tab=returns-long-term - sort by 3 year returns, and you see Canara Robero and Axis Bluechip large caps beating the Indices by around 3%. But man, the rest of it down is all index funds. What the royal F happened there!!
- What about multi-cap and flexi-cap? I hear that the new mandate says that multi-cap has to 25% each in large, mid, and small caps. And how do they categorize funds which go outside India to the likes of GOOG, or AAPL for the 35% chunk of investments (PPFAS fund, for example). And flexi-cap is still entirely flexi, I presume.
- As for people labeling themselves - I think it makes life simpler. Each category is already quite complex as it is. Even traditional P/B type value investors need to spend ages understanding what works and what does not. Figuring out that 12_1 momentum works, but 24_1 momentum doesn't work takes years of research. So, if someone wants to play in a smaller field, I presume they want to go deeper in that field - or they want to stick to that field for investing, and spend the rest of their time watching movies or doing something else that they care about.
Great rant btw.
There are ~40 large-cap funds. You'll always find a few beating benchmarks after the fact. Transport yourself to Jan 2018 (after SEBI's classification went into effect) and ask yourself which funds you would've picked without this look-forward bias. It's impossible with discretionary funds.
A biggest sign of maturity an asset manager can display is negotiating the right mandate and benchmarks. Had written about this previously:
https://stockviz.biz/2015/02/26/funds-also-invest-foreign-markets/
https://stockviz.biz/2018/05/16/benchmarking-momentum-index/
There is no "there" there in investing. You snooze, you lose. Till the 1960's, the ratio between the dividend yield of stocks vs. bonds was a reliable switch signal. Whenever dividend yields slid to approach bond yields, as they did in 1898 and 1929, stock prices fell or bond prices rose such that the relationship between the one type of yield and the other was maintained. Then, no more.
https://www.bigtrends.com/education/the-ratio-of-dividend-yields-to-bond-yields-in-historical-perspective/
And more recently, https://willgeffen.medium.com/the-abstraction-of-shareholder-return-65056a150bab
Capital keeps getting cheaper and more widely available. Analytical tools, computational power, etc. keep advancing. Knowledge banks keep getting easier to access.
Academia rewards depth. Markets reward breadth.