Investments in safe havens and low risk options with a steady, small return are ordinarily good place to start but rarely do they overcome inflation. However, the largest potential returns lie in the equity side of investments. To give the reader an idea of the market performance of the Karachi Stock Exchange (KSE), the year started July 1st with KSE 100 at 29,702, reaching a high of 30,475 (24th July) and a low of 27,775 (28th August) during the first quarter of the New Year.
This showed an appreciation of 2.6% to the peak in July, and then a decline of 6.5% from the peak to the lowest level. The first quarter ended on September 30th at 29,726, bringing it on par to the level at the start.
In terms of total returns, the KSE generated a positive return of 0.3% during the first three months of the new year. This was easily and significantly trumped by the top ranked equity mutual funds, with the best performing fund, Lakson Equity Fund (of Lakson Investments), generating returns in excess of 4% for the same period.
This significant outperformance over the index is attributable to various factors.
Firstly, the primary reason investors gravitate towards mutual funds is that they provide them with professional management of their money, as they lack the time or the expertise to manage their own portfolios. A mutual fund is an inexpensive way for a small investor to get a full-time manager to make and monitor investments on his or her behalf. Indeed, for the funds in the table above, excess returns were a direct result of their investment and research teams’ abilities to manage exposure levels in specific industries and quickly realise profits, as and when they accrued.
In addition, equity funds by their very nature are allowed to be flexible in the market, which creates the opportunity for these teams to strategically manage their sector allocations in accordance with changing tides. As a result, more prudent investors who, in this instance, remained vested in equity funds during the period under review, walked away with some serious gains (a cow instead of the usual goat on Eidul Azha!)
Investors who get burned in markets often invest in individual stocks at the behest of a broker who is often guided by his or her own commissions, or invests in poorly managed funds. Going forward, the prudent investor should select high quality equity funds, from an asset management company which has a good track record of managing money and has shown outperformance in turbulent times.
A particular fund’s performance can easily be verified and researched by studying its data on the Mutual Fund Association of Pakistan’s website: www.mufap.com.pk. It is easy to make money when markets are going up but when markets are volatile, is when the best funds continue to outperform the market and ‘the cream rises to the top’ (refer to table).
A list of the best performing funds
Rank number Fund Returns FY15TD / 1QFY15
1 Lakson Equity Fund 4.4%
2 NAFA Stock Fund 3.9%
3 National Investment Unit Trust 3.6%
4 United Stock Advantage Fund 3.3%
5 PICIC Stock Fund 2.9%
6 Alfalah GHP Alpha Fund 2.3%
7 Atlas Stock Market Fund 2.1%
8 Pakistan Stock Market Fund 1.8%
9 First Capital Mutual 1.8%
10 IGI Stock Fund 1.4%
Benchmark KSE-100 0.3%
Source: MUFAP, Bloomberg Date: 1st October 2015
Published in The Express Tribune, October 13th, 2014.
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