Below par: Only four equity funds outperform KSE-100 index

NIUT, Safeway Mutual Fund, Asian Stocks Fund exceed 40% annual return.

KARACHI:

Only four out of the 23 conventional equity funds managed to outperform the Karachi Stock Exchange (KSE)-100 Index in 2013-14.

According to data compiled by the Mutual Funds Association of Pakistan (MUFAP), only four conventional stock market funds posted an annual return exceeding 41.1% – the rate by which the KSE benchmark index increased in the last fiscal year.

The best-performing equity fund in 2013-14 was National Investment Unit Trust, which posted a return of 56.4%. It was followed by Safeway Mutual Fund, whose annual return clocked up at 54.8%. The return of the third-best performing equity fund, Asian Stocks Fund, remained 53.9% while AKD Opportunity Fund came fourth with an annual return of 47.7%.

Equity funds that narrowly missed the return posted by the KSE-100 Index in 2013-14 were PICIC Stock Fund (40.3%), JS Growth Fund (40.1%) and JS Large Cap Fund (39.6%).

Other equity funds that posted decent returns in 2013-14 include ABL Stock Fund (30.6%), Atlas Stock Market Fund (30%), Crosby Dragon Fund (32.8%), First Capital Mutual Fund (32.8%), JS Value Fund (34%), Lakson Equity Fund (32.1%), NAFA Stock Fund (36.3%), Pakistan Stock Market Fund (34.7%), Pakistan Strategic Allocation Fund (31.3%) and United Stock Advantage Fund (31.4%).

Speaking to The Express Tribune, BMA Capital Director Research and Business Development Azfer Naseem said the reason a majority of equity funds underperformed with respect to the benchmark index in 2013-14 is that fund managers prefer to invest in ‘mainboard stocks’.

Mainboard stocks represent blue-chip companies that dominate the market. In contrast, ‘sideboard stocks’ are those that draw little attention by a majority of fund managers despite being constituents of the benchmark index.

“Fund managers tend to allocate a major portion of their assets to blue-chip stocks while ignoring sideboard stocks that offer far greater potential for growth,” Naseem said, adding that the surge of 41.1% in the KSE-100 Index in the last fiscal year was driven mainly by sideboard stocks.

For example, the share price of Ghandhara Nissan stood at RsRs40.2 at the end of the fiscal year after rising 416.3% during 2013-14. Similarly, the share of Hum TV Network sold at Rs106.8 at the end of the last fiscal year, which is up more than 187% from the beginning of 2013-14.

Another stock that appears to have largely remained off the radar of fund managers is Pak Elektron, which sold at Rs26 at the end of June, reflecting a price appreciation of 62.5% over the last one year. Similarly, the stock price of National Foods increased 120.9% during the last one year.

“Prices of blue-chip stocks in major sectors, such as banking and exploration and production, did not increase as quickly as those of sideboard stocks during 2013-14,” Naseem noted.

Published in The Express Tribune, July 3^rd, 2014.

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