When judging a mutual fund’s performance, trailing returns can be pretty misleading and shallow an approach. Without underlying context, historical returns usually don’t say much.
Similar misleading can arise from judging only recent performance. A fund may have done well for the last month, or three or six, or even a year. But it may not have done well over long time frames; which is key in wealth generation, especially in equity funds.
To give the analysis some perspective, trailing returns can be looked at in conjunction with
Returns for the category they are present in, and
Over multiple time periods (preferably years, and not months)
If funds give higher returns consistently over different time periods (especially longer duration) compared to their peers, they can be categorized as serial outperformers. Typically, this would imply that things are going right at several levels with the fund:
Investment frameworks
Fund managers
Investment philosophy
Appropriate sector allocation
Superior stock selection
We ran a quick search amongst equity mutual funds to see if any of the funds have been serial outperformers. Here are the names we found consistently generating higher returns compared to peers since 2014.
Of course, there will be years when they haven’t done their best; but the important bit is that the number of years they have done are far more, compared to their own performance, and their peers. A fund may have underperformed terribly in 2015, but if it has outperformed for four straight years after, you’ve invested in the right place.
Large-cap mutual funds
Axis Bluechip Fund Direct Plan Growth
Canara Robeco Bluechip Equity Fund Direct Plan Growth
Edelweiss Large Cap Direct Plan-Growth option
Kotak Bluechip Growth Direct
Mirae Asset Large Cap Fund Direct Plan Growth
Mid-cap funds
Invesco India Mid Cap Fund - Direct Plan - Growth Option
Kotak Emerging Equity Scheme Direct Growth
Tata Mid Cap Growth Fund Direct Plan Growth
Taurus Discovery (Midcap) Fund - Direct Plan-Growth Option
Small-cap funds
Kotak Small Cap Direct Growth
Nippon India Small Cap Fund - Direct Plan - Growth Plan
It’s also worth noting how Kotak makes an appearance in all the three categories. Definitely speaks volumes about the fund management capabilities across the AMC.
Exhibit 1:
Exhibit 2:
