I kept thinking why was excess volatility so low for Quant MFs and I reached out to a client who runs a large advisory set up and asked him. "Do you know their turnover? I have an intuition it's very high". The client said, "It's acknowledged that their turnover is very high". I had my answer for how despite more than half of the segment data showcasing negative excess volatility, the fund was actually taking excessive risk to generate its incremental alpha. Let me introduce you to the magic of turnover and why you should not touch funds with turnover higher than annually 50%.
We await SEBI's findings, yet the notion of a top Indian MF engaging in frontrunning is hardly shocking. The industry still struggles to look beyond mere performance figures, presenting the regulator with the formidable task of uncovering the truth. Several months ago, an emerging fund manager in India approached me after successful meetings with family offices, praising the analytics we developed for him. He saw it as an opportunity to present his figures through a statistical, rather than a purely performance-based, lens. We agreed to apply our statistical methods, used in our own indexes and models, to evaluate Indian mutual funds, starting with the Small Cap category—his area of focus. Among the ten funds we analyzed, Quant Small Cap was included. Given our emphasis on dissecting performance to delve into risk and attribution, Quant did not emerge as a top-rated fund, despite its stellar performance.
On the occasion of the 50th anniversary of the prominent benchmark that symbolizes India's economic prowess, the National Stock Exchange of India (NSE) unveiled the "Nifty 50 Stock of the Nation" report. This insightful report sheds light on the intricacies of Nifty, a key player in the vast $3.6 trillion Indian Stock Market. Its timing couldn't be more perfect, as it serves as an educational tool for both individual and institutional investors. The report underscores a critical fact: despite the apparent stability, investing a substantial 65% of resources into just three out of the 18 sectors paints a picture of concentration, not diversification, which inevitably translates to heightened risk.
