Historical returns are often used to evaluate the performance of mutual funds. Such returns are calculated either on a trailing basis or a rolling basis. The former is also known as point to point return, which is calculated on a specific date for a defined time period. Let us suppose an investor purchased 100 units of a fund at Rs 10 NAV on 1 June 2018; the NAV on 1 June 2020 was Rs 25. The trailing return calculated on 1 June 2020 works out to 150% (absolute return). It can be further sub-classified as absolute and annualised return. The CAGR return in the above example is 58.1%, which is the annualised return.
However, the trailing return suffers from bias as it gets influenced by the performance of the markets on the calculation date. For instance, Sensex declined over 4.5% between 24 January 2020 and 1 February 2020. Therefore, the one year return of an equity fund calculated on 24 January will significantly differ from the one year return calculated on 1 February. To overcome such biases, the rolling returns are preferred.
Rolling returns can be calculated for different time periods and can be worked out for every succeeding day, week, month or year in the defined time frame. For instance, using the data for the last one year, one month rolling return can be calculated on a daily basis. The first rolling return will be from 1 June 2019 to 30 June 2019, the second will be between 2 June 2019 and 1 July 2019 and so on. Such a series of returns can be averaged out to find out the average rolling returns. The rolling returns if calculated for long time periods like 5 or 10 years, can help to capture several market cycles.
We tried to identify equity diversified mutual funds that have performed well on rolling returns across different time frames. Past six years’ rolling returns data starting from 29 May 2014 for 204 equity diversified funds were considered. Only growth schemes and standard plans were included. The rolling returns were calculated on a weekly, monthly, and yearly basis on the daily frequency data. As a result, there were three rolling return series (weekly, monthly, yearly) for each equity diversified fund in the selected universe. Similar rolling returns were obtained for the BSE500 TRI index across the three defined time frames.
A percentage was calculated for each fund across the defined time frequencies by dividing the number of positive rolling returns by the total number of rolling returns. For example, compared to the total number of observations in the weekly time frame, 57% of the observations were positive for Canara Robeco Bluechip Equity Fund in the past six years. Such percentages were worked out for each fund across weekly, monthly, and yearly time frames. The percentages were then compared with similar percentages for BSE500 TRI index.
Only those funds were selected whose percentage of positive rolling returns was greater than the percentage of positive rolling returns of the BSE500 TRI index across the three selected time frames. In addition, the percentage of positive rolling returns for a fund had to be in the top 25% of the universe across the defined time frames. Lastly, the funds so obtained were evaluated on the Value Research star ratings and only those with 5-star ratings were considered. Only six funds passed all of the filters comprehensively. Let us have a look at the five biggest funds:
Know the funds that performed well
Rolling returns do not get influenced by the performance of the markets on the calculation date.
Mirae Asset Large Cap Fund
The fund invests over 80% of its corpus in large-cap stocks and aims to identify companies that are sector leaders and have strong pricing power. Between April 2019 and April 2020, its AUM jumped by over 24.6%. HDFC Bank, Reliance Industries, ICICI Bank, Infosys, and TCS were the top five stocks held by the fund in April 2020. The fund has maintained a moderate risk profile with a beta value of 0.93.
Mirae Asset Emerging Bluechip
It is a large and mid-cap fund that invests in large cap companies and also emerging businesses that have the potential to turn into bluechip companies in the future. Its AUM grew by 21.6% in the past one year. Over 45% of its assets were concentrated in the top five sectors that include private sector banks, IT, pharma, refineries and NBFCs. Looking at the risk-adjusted returns, the fund has generated a positive alpha from May 2017 to May 2020.
Axis Midcap Fund
This fund aims to achieve long term capital appreciation. Its AUM jumped by over 2.2 times between April 2019 and April 2020. The total number of equity stocks held by the fund in April 2010 was 51. The average concentration in a single stock is 1.61%. Avenue Supermarts, Ipca Laboratories and Bata India are among its top three stocks.
Canara Rob Emerging Equities
The fund invests in a diversified portfolio of large and mid cap stocks. The equity portfolio had 53 stocks in April 2020. Private banks, pharma, IT, refineries, and retail are among its top five sectors. The 5-year SIP return of the fund is 2.1%, compared to -1.46% average 5-year SIP returns of all equity diversified funds.
SBI Small Cap Fund
The fund invests a minimum of 65% of its AUM in small-cap companies and 35% in other equities or debt/money market instruments. Its AUM grew by 64.6% in the past one year. Hawkins Cookers, Dixon Technologies and Elgi Equipments were among the top three stocks in its portfolio in April 2020. The average concentration exposure per company is 1.93%.
