Large Cap Fund Managers Struggling Hard to Generate Alpha. Here’s What You Should Do!
Mutual fund managers have a primary job to check that the funds they are managing deliver better risk-adjusted returns as compared to their respective benchmarks. There is no denying the fact that the true worth of the fund lies in how much return it can produce as compared to its benchmark.
This factor is measured by an alpha. For our new readers, alpha is often considered as a metric to gauge a fund’s performance. Prudent investors are, therefore, more attracted towards funds generating a higher alpha.
Considering the current scenario, generation of alpha has become a tedious task for our fund managers, especially the ones managing large-cap funds. Let’s find out what is the reason behind it, and learn the solution from our mutual fund experts.
Reason for the Declining Alpha
Generation of alpha mostly becomes a grinding task for fund managers as the stock market matures. Ballooning size of the fund is yet another critical factor that adds fuel to the fire. Well, talking about the present case, increasing size of AUMs and maturing markets are both to be blamed as of now.
Several micro and macro factors such as the rising interest rates, increasing crude prices, 2019 elections, etc., are causing the fall in the market, and thus negative returns. Many experts, too, believe that the dampening sentiments can also be due to the churning of mutual fund portfolios as per SEBI’s re-categorization and rationalization directive.
Further, there are several funds which were also hit by wrong bets in certain sectors. For instance, a few of them are underweight in good performing sectors, say technology, and overweight in PSU banks and metals.
Experts’ View on “What Should Our Investors Do?”
Our analysts believe that the market is volatile as of now, but it would continue to correct in the short-term. This turbulence will provide benefit to the investors in the coming years. Therefore, it is indeed a good time to deploy money via SIP in equity schemes; but in a phased manner. Undoubtedly, it would be difficult to generate alpha or benchmark-beating returns for at least the next one to two years, but it’s the time which is testing your patience.
Only the ones who would be able to bear this short-term pain will accrue the benefit of post-inflation, post-tax returns.
For the New Investors
Being new to the mutual fund investment world, we get it that you are not acquainted with the ups and downs of this roller-coaster ride. However, this is not the time to back out, indulge yourself in reading some great stories of disciplined investors who managed to earn huge profits on their investments in the long term. Believe in the power of compounding as it will show its magic. Keep reminding yourself that the plus side of investing via SIPs is to take advantage of such volatility.
On a final note, SIP investment works best when you don’t try to time the market and invest in a disciplined way. In the falling markets, buy more number of units and enjoy the essence of rupee-cost averaging. To seek guidance on the best SIP investments, connect with the experts at MySIPonline. We will be happy to help you!