Investment Objectives & Advice

The most critical part of investment journey!

let me share a story, I have come across recently, to set the tone of today’s topic.

Jack Bogle was talking about “Buy & Hold” to some investment advisers, and one adviser complained, “I tell my investors to do this, and the next year, they ask what should they do, and I say, do nothing, and the third year, I say do nothing. The investor says, ‘Every year, you tell me to do nothing. What do I need you for?’ And I told them ‘You need me to keep you from doing anything.'”

Over the years, I have shared cases and my pertinent advise to specific queries. One such case was in 2019, I wrote my view and analysis for the Aditya Birla Sun Life Pure value fund. After the discussion, the investor has paused his SIPs in the fund and moved the new money to a better risk aligned fund for himself. As I suggested him to not sell off the current investments at the bottom of the cycle. He held on and today after 2 more years of wait, they fund has delivered a great return (Details below). He is happy now and Ok for him to make the exit as well.

Source: Morningstar India as of Aug 31, 2021

In a similar instance, last year lot of people hit me with the questions about the future of ICICI Prudential Equity & Debt fund. They tried to pick me on this fund for its underperformance as the fund category (Aggressive Hybrid Fund) is widely recommended by me and this specific fund was also part of my shortlist of funds to be in my portfolio (When I replaced my HDFC Hybrid Equity Fund after 10+ years of holding). One year since then, The fund has came back with roaring returns and my two cents of analysis are vindicated again. In below table, You will see that the fund has +10% outperformance vs the Category & ~20% outperformance vs the Index on YTD basis.

Source: Morningstar India as of Aug 31, 2021

The reason, I brought these two cases back to light due to my recent conversation with a friend about “What should he do for his underperforming fund?“. I have often given the specific advise but realized that a generic checklist would be a better solution and can be applied by the wider population. If the fund has been underperforming, Analyze the reason of the underperformance:

  1. Is it driven by the style or category being out of favor? or
  2. There has been any change in the fundamental attributes of the fund? or
  3. The fund manager has been changed and causing the rejig of portfolio? or
  4. etc.. etc..

If the change is cyclical in nature, you might be better of waiting for cycle to turn and then move out at the top of the cycle. Though when fund starts to perform back, you might forget that you wanted to move out of this fund therefore make a record of it for a 6monthly review. If the changes are permanent in nature, like heavy loss of AUM, loss of star fund manager or substantial increase of TER etc. You should plan your exit in optimal manner, check the exit load implications as well as the tax treatment of the accumulated capital gains. If you can not determine the reason of underperformance, do not hesitate and speak with a competent financial advisor who can help you with the process. Any good advisor would be worth the fee they would charge.

Lastly, If you hate the periods of underperformance than it is an apt situation to explore the passive funds to get the closer to index performance. This would not only eliminate the anxiety of the underperformance but also take away the effort in fund review/ selection. Let me leave you with these lines from the Netflix series “THE CROWN” as it reflects the most critical part of investment journey “Buy & Do nothing” unless the reason to sell is one from the list.

To do nothing is the hardest job of all. And it will take every ounce of energy that you have. To be impartial is not natural, not human.

Happy Investing!

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