How funds performed during the 3-month recovery?
WHICH FUND CATEGORIES LED THE MARKET RECOVERY?
Three months may be a very short term to assess mutual fund category performance. However, the purpose is entirely different. We are not talking about wealth creators, but the narratives that led the rebound in markets in last 3 months. The market made a bottom around early March and in the last 3 months it has rallied 13.2%. However, the question is which narratives would have participated in this bounce? We look at performance in terms of risk-adjusted returns, so that we do not encourage buying returns with risk. While we use risk-adjusted returns to assess categories, they do not mean much in isolation, and are for purely comparative purposes. Here is what our evaluation of funds for 3 months tells us.
GENERIC EQUITY FUNDS: RANKED ON 3-MONTH RISK-ADJUSTED RETURNS
These are the seven categories of generic equity funds. Here is how they rank on risk-adjusted returns.
| Active Equity Funds – MCAP | Average | Best | Worst | Range | Risk-Adj Returns |
| Multi-Cap | 13.59 | 17.14 | 11.09 | 6.05 | 2.2463 |
| Small-Cap | 15.87 | 19.11 | 11.72 | 7.39 | 2.1475 |
| Mid-Cap | 16.39 | 21.16 | 10.72 | 10.44 | 1.5699 |
| Large & Mid- Cap | 14.00 | 23.63 | 9.48 | 14.15 | 0.9894 |
| Large-Cap | 11.44 | 14.52 | 1.51 | 13.01 | 0.8793 |
| Flexi Cap | 12.83 | 26.47 | 8.64 | 17.83 | 0.7196 |
| ELSS (Tax Savings) | 12.22 | 22.92 | 2.13 | 20.79 | 0.5878 |
Data Source : Morningstar
In our longer term rankings, it was the large & mid cap funds and the large cap funds that stood out. However, what this table tells us is that in this 3-month recovery, it is a multi-asset approach that would have really worked. More specifically, adding small and mid-caps to the portfolio would have added to risk-adjusted returns. However, a multi-cap mixing approach would have been a better choice. Not surprisingly, multi-cap funds continue to outperform flexi-cap funds on risk-adjusted returns.
THEMATIC EQUITY FUNDS: RANKING ON 3-MONTH RISK-ADJUSTED RETURNS
These are the 10 categories of thematic equity funds based on sectoral and strategic themes. Here is how they rank on risk-adjusted returns.
| Active Equity Funds – Thematic | Average | Best | Worst | Range | Risk-Adj Returns |
| Sector – Energy | 13.07 | 14.92 | 12.89 | 2.03 | 6.4384 |
| Contra | 12.78 | 13.05 | 9.51 | 3.54 | 3.6102 |
| Sector – Financial Services | 17.11 | 21.12 | 15.50 | 5.62 | 3.0445 |
| Equity- Infrastructure | 16.38 | 21.52 | 12.22 | 9.30 | 1.7613 |
| Value | 10.99 | 16.96 | 7.67 | 9.29 | 1.1830 |
| Focused Fund | 12.35 | 20.27 | 7.28 | 12.99 | 0.9507 |
| Sector – Healthcare | 8.00 | 12.70 | 3.40 | 9.30 | 0.8602 |
| Equity – ESG | 11.04 | 15.39 | 1.20 | 14.19 | 0.7780 |
| Dividend Yield | 10.27 | 14.72 | 1.50 | 13.22 | 0.7769 |
| Sector – Technology | 4.07 | 15.06 | 2.76 | 12.30 | 0.3309 |
Data Source : Morningstar
There is not much of a surprise in the leaders. Energy stocks have gained from lower crude prices while financials services theme played out as an India-specific story amidst the global tumult. Another reason energy has done well is the focus on government companies amidst rising government-driven capex in Q4FY25. Technology ended up at the bottom, since the volatility was too high due to the global dependencies.
HYBRID ALLOCATION FUNDS: RANKING ON 3-MONTH RISK-ADJUSTED RETURNS
These are the 5 categories of hybrid allocation funds and how they rank on risk-adjusted returns.
| Hybrid Allocation Funds | Average | Best | Worst | Range | Risk-Adj Returns |
| Balanced Allocation | 8.52 | 11.68 | 6.84 | 4.84 | 1.7603 |
| Aggressive Allocation | 10.49 | 15.39 | 7.14 | 8.25 | 1.2715 |
| Dynamic Asset Allocation | 7.89 | 13.37 | 1.98 | 11.39 | 0.6927 |
| Conservative Allocation | 5.16 | 7.38 | -1.56 | 8.94 | 0.5772 |
| Equity Savings | 4.97 | 9.20 | -1.75 | 10.95 | 0.4539 |
Data Source : Morningstar
Like in the previous months, it is the balanced and aggressive allocation funds that have worked best in terms of risk-adjusted returns. The volatility in the bond markets has been quite high in this period due to the big moves in US bond yields and the uncertainty over rate action. Discretionary funds like BAF and Equity Savings also score low on risk-adjusted returns, a trend that was seen in previous occasions too.
ACTIVE DEBT FUNDS: RANKING ON 3-MONTH RISK-ADJUSTED RETURNS
These are the 14 categories of active debt funds; both at the short and long end of the yield curve. Here is how they rank on risk-adjusted returns.
| Active Debt Funds | Average | Best | Worst | Range | Risk-Adj Returns |
| Banking & PSU | 4.01 | 4.78 | 2.21 | 2.57 | 1.5603 |
| Medium to Long Duration | 3.95 | 4.79 | 0.51 | 4.28 | 0.9229 |
| Medium Duration | 3.49 | 4.76 | 0.78 | 3.98 | 0.8769 |
| Dynamic Bond | 4.04 | 5.08 | 0.46 | 4.62 | 0.8745 |
| 10 yr Government Bond | 4.21 | 5.00 | -0.15 | 5.15 | 0.8175 |
| Short Duration | 3.80 | 6.16 | 1.10 | 5.06 | 0.7510 |
| Ultra Short Duration | 2.19 | 3.40 | 0.17 | 3.23 | 0.6780 |
| Government Bond | 4.01 | 5.26 | -2.78 | 8.04 | 0.4988 |
| Money Market | 2.39 | 4.04 | -0.99 | 5.03 | 0.4751 |
| Low Duration | 2.72 | 5.28 | -0.74 | 6.02 | 0.4518 |
| Long Duration | 3.99 | 10.03 | -0.73 | 10.76 | 0.3708 |
| Floating Rate | 3.46 | 5.67 | -4.02 | 9.69 | 0.3571 |
| Credit Risk | 4.78 | 16.07 | 2.31 | 13.76 | 0.3474 |
| Corporate Bond | 3.88 | 10.37 | -2.86 | 13.23 | 0.2933 |
Data Source : Morningstar
In last 3 months, the categories that gave best returns were credit risk funds, government bond funds, and the Banking & PSU Funds. The last category earned high yield with low risk, which is why they ranked top on this recovery. Other leaders were longer duration funds that saw capital appreciation with falling repo rates. At the bottom were the riskier assets, showing a clear shift to safety in the last 3 months, as far as debt funds are concerned.
ALTERNATE FUNDS: RANKING ON 3-MONTH RISK-ADJUSTED RETURNS
These are the 3 categories of diverse but alternate fund classes. Here is how they rank on risk-adjusted returns.
| Alternate Funds | Average | Best | Worst | Range | Risk-Adj Returns |
| Sector – Precious Metals | 11.37 | 13.18 | 8.56 | 4.62 | 2.4610 |
| Arbitrage Fund | 1.66 | 2.05 | 0.31 | 1.74 | 0.9540 |
| Liquid | 1.74 | 18.22 | 0.00 | 18.22 | 0.0955 |
Data Source : Morningstar
Even in the short time frame of 3 months, precious metal funds like gold funds and silver funds have been the top performers on risk-adjusted returns. Like on previous occasions, these gold and silver funds have not only outperformed other alternate asset classes, but have performed better than most equity fund categories too. Not surprisingly, arbitrage funds continued to do better than liquid funds, amidst the market volatility.
To sum up, BFSI has been a common winning theme across equity and debt. A multi-cap approach with a predominance of small and mid-caps did best in the last 3 months.