The funds that provided the most downside protection during the recent market drop
The Indian market has corrected 14% so far from its peak of 61,765 hit in October 2021 on continued FII sales. In 2022, the Sensex peaked at 61,308 on January 17. The index has corrected 13% so far as of June 27, 2022.
Therefore, most equity fund categories are in red. From January 1, 2022 to June 27, 2022, the S&P BSE Small Cap Index declined by -24.56%. The S&P BSE Midcap TR was down -19.22% while the S&P BSE 100 was down -15.68%.
The true test of a fund manager is to generate superior returns relative to its peers and benchmark during bull and bear markets while meeting its investment mandate.
We’ve looked at which funds in the Large, Mid and Small Cap categories have provided the most downside protection or had the least downside during this volatile time since June 23, 2022. What is the maximum downside? It is measured as the maximum loss of the portfolio during a peak-to-peak decline before a new peak is reached. Maximum drawdown is usually given as the percentage between peak and trough. This is a downside risk indicator over a given period.
For example, if a portfolio has an initial value of 5,00,000 which increases to 7,50,000 over a period of time, before dropping to 4,00,000. It then bounces back to 6,00,000 before falling back down to 3,50,000. Thereafter, it more than doubled to 8,000,000.
The maximum drawdown, in this case, is:
3,50,000 – 7,50,000/ 7,50,000 = 53.33 The downside can be protected in two ways: superior stock selection or high cash holdings during a falling market.
Launched in 1996, HDFC Top 100 Funds experienced the least YTD drawdown (June 23, 2022) at -13.14% against the benchmark S&P BSE 100 TRI which fell -15.68%. However, the fund experienced the highest drop in the category over a ten-year period, at -41%. The fund has underperformed its benchmark over a five- and ten-year period to June 23, 2022.
Only seven funds outperformed the BSE 100 index over a ten-year period to June 23, 2022, while 25 funds underperformed. The funds that outperformed are Mirae Large Cap Asset Fund, PGIM India Large Cap Fund, Axis Bluechip Funds, SBI Bluechip Funds, Canara Robeco Bluechip Equity Fund, Nippon India Large Cap Fundand ICICI Prudential Bluechip Fund.
Motilal Oswal Midcap 30 saw the smallest drawdown of -16.36% since the start of the year, while the S&P Mid Cap fell -19.22%. However, the fund has not been able to beat its benchmark over a ten-year period.
HSBC Mid Cap Fund had the highest drawdown since June 23, 2022, at -24.96%.
HDFC Mid Cap Opportunities Fund recorded the second lowest drawdown at -16.44% since June 23, 2022. The fund has outperformed its benchmark index over a period of five and ten years.
Over a ten-year period to June 23, 2022, 13 funds outperformed while eight underperformed. Funds that have outperformed over a ten-year period are Kotak Emerging Equity Program, L&T Mid Cap Fund, Edelweiss Mid Cap Fund, Axis Midcap Funds, DSP Midcap Funds, Invesco Indian Mid Cap Fund, HDFC Mid-Cap Opportunities, Mid-rise Tata cap, Taurus Discovery (Mid Cap), Franklin India Prima Fund, UTI Mid Cap Fund, ICICI Prudential Mid Cap Fund and Baroda BNP Paribas Mid Cap Funds.
ICICI Prudential Smallcap Fund experienced the smallest drop of -15.22% since the beginning of the year compared to the benchmark S&P BSE Small Cap which fell -24.56%. This Fund has outperformed its benchmark over a five-year period, but underperformed over a ten-year period.
Over a ten-year period, seven funds outperformed the S&P BSE Small Cap TRI while eight funds underperformed. Funds that have outperformed their index over a ten-year period are SBI Small Cap Fund, Nippon India Small Cap Fund, DSP Small Cap Fund, Little Kotak Cap, HDFC Small Cap, Axis Small Cap Fundand Franklin Indian Smaller Companies Fund.