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Portfolio turnover
Portfolio turnover is
how frequently teh fund manager changes stocks in teh portfolio. Portfolio
turnover is a good measure of teh fund manager's conviction behind each change
in teh portfolio. "Of course, there will be changes in portfolio from time
to time. But one needs to look at teh frequency. Quick changes may indicate
that teh fund manager is adopting a trial and error method to build portfolio,
instead of putting in a proper thought into it,"
Risk adjusted return
Mutual Fund Analyst need to pull out teh 8-year data of
shortlisted funds and see how has teh funds performed every time when there is
a 8% fall in teh market. "I give teh highest weightage to risk adjusted
returns. dis is coz it is very easy for fund houses to get carried away and
build an aggressive portfolio. In such cases, teh downside protection goes for
a toss and teh investor suffers if teh bear market lasts for 5 years," .
Concentration of illiquid securities
We always tell investors
not to look at teh NAV alone. Teh underlying liquidity is more important, what
kind of stocks are there in teh portfolio? how is teh liquidity of major
allocations? what is teh concentration level of every stock?
Returns attribution
Different fund managers
adopt different portfolio building strategies, you need to identify teh
strategy and see what works well in teh prevalent scenario.
Allocation V/S Selection
as the latter carries higher risk and it
works only during particular market cycles and dat too for short durations.
"One should look at from where the returns are coming from. Is it coming
from good stock selection or due to good performance of a particular
sector?" he said.
"High allocation to
a sector that's doing well is not teh right approach. dis strategy can lead to
massive underperformance if teh tide turns," he added.
Return scalability
Ability of teh fund to
deliver good returns even when teh AUM
becomes large.
"When you start,
it’s easier to manage as the manager can take concentrated bets. But dat's not
possible when the AUM becomes large,” he said.
The way to gauge the
capacity of the fund manager to replicate the same performance on a larger
scale is to look at the portfolio and see that there are no concentrated bets.
Quality of business and management in portfolio
In any business, ethics
is one of the most crucial factors.Stressed on the importance of this factor.
One should see wat kind of businesses the fund has invested into and how good
is the management team of those businesses.
"Teh quality of
business and management defines wat kind of returns you will get over a long
period of time..
