The past 5 years have been a true test for mutual-fund managers with the equity markets swinging wildly each year while climbing only about 12% (absolute returns) point to point.
Several funds have shone through with their ability to make the most of the index's gains while trying their best to keep losses in check during a falling market. But there are funds that have not done a very good job in handling the volatility.
Here we look at funds whose ability to capture gains in a rising market (or upside-capture ratio--the percentage of an index's gains a fund captures in an up market) was overshadowed by its downside-capture ratio (or how much a fund loses compared to its benchmark index in a falling market).
Typically, for a good fund, the upside-capture ratio should be high while downside-capture ratio should be as low as possible.
Between 2007 and 2011, the difference between the upside- and downside-capture ratios remained the highest for these funds.
JM Basic
Upside-capture ratio (5-year): 101.68%
Downside-capture ratio: 137.42%
Difference between upside- and downside capture ratios: -35.75%
5-year returns (annualized): -12.21%
During 2007's frothy run, this fund rose a stellar 111%, beating its category by about 51% but the 2008 crash was punishing as it lost about 75% compared to 58% for the category average.
After an average 2009 rebound, the fund dropped about 14% in 2010 even as the average peer gained 19%. Last year, the fund plunged a whopping 41%, which does not sit well with a 25% for the peer.
Over the five years, the fund has changed its stripes and gone on to largely invest in large-cap stocks, as opposed to small and mid caps in 2007.
The fund's standard deviation--a measure of volatility--stands at an extreme 46.93, compared to 32.36 for the category.
HSBC Progressive Themes
Upside-capture ratio: 74.95%
Downside-capture ratio: 101.91%
Difference between upside- and downside capture ratios: -26.97%
5-year returns (annualized): -8.52%
The small- and mid-cap fund rose about as much as peers in 2007 and fell almost as much the next year.
But it missed out on the 2009 and 2010 rebound in a big way, rising 53.86% and 5.88%, respectively, compared to 95.11% and 19.44% for the average peer. In 2011, the fund plummeted about 41%.
LIC Nomura MF India Vision
Upside-capture ratio: 86.78%
Downside-capture ratio: 111.62%
Difference between upside- and downside capture ratios: -24.84%
5-year returns (annualized): -7.24%
The fund beat the average peer by about 16% in 2007, and fell 13% more in 2008. It 2009, the fund rose only about 43% compared to 77% for the category average.
After an average 2010, the fund went back to its losing-more-than-the-market way in 2011, falling about 31%, 6.7% more than its peer.
JM Equity Fund
Upside-capture ratio: 93.48%
Downside-capture ratio: 116.92%
Difference between upside- and downside capture ratios: -23.45%
5-year returns (annualized): -6.74%
The mid- and small-cap fund underperformed the category average and its benchmark in each of the 5 years and landed in the bottom quartile in 4.
On Morningstar's measures, the fund sports a "high" risk rating over 5 years and a "low" return grade.
HSBC Midcap Equity
Upside-capture ratio: 96.12%
Downside-capture ratio: 119.20%
Difference between upside- and downside capture ratios: -23.09%
5-year returns (annualized): -6.91%
The fund sports a better-than-category-average upside-capture ratio but what affected its performance was tendency to fall more than peers in a down market.
But it is not just the fund's high-beta small-cap focus--it lagged peers by 7% and 18%, respectively, in the rebound of 2009 and 2010. In 2011, it fell a mammoth 43%.