Sharekhan has released a newsletter depicting it's latest performance.
The Nifty Thrifty is an automated investment scheme where calls are generated by a computerised model. So no human intervention, and backtested for a while to ensure that the strategy stays statistically valid. But over this time period the results have been dissapointing.
Interestingly, the Nifty has done, er, phenomenally better. From Feb 1, 2006, the Nifty has moved from 2963 to 5907 (as on 31 Oct 2007, the date of the newsletter). That's a 100% gain nearly, but the Nifty Thrifty has only done about 34%.
It may not be a fair comparison to compare with the Nifty because of what they say:
Absolute returns? This needs to be highlighted because we do not intend to beat any particular index in a short period of time. We only intend to be able to generate absolute returns irrespective of where the market is heading by trying to capture trends based on technical analysis. So its more important to end the year with a profit than to compare that if the index was up 10% we should have also earned 10% or more. That is not the objective at all.
This is plain horseshit. Read on their portfolio management page that this is a "high risk, high return" kind of scheme, for which they pay high fees. And nowhere in the scheme's page does it say that the aim is capital protection - in fact your capital is not at all protected.
This graph shows you how the NAV behaved - and I hope this is after fees etc. (If it's not, the performance is considerably worse) Note that to protect capital the graph needs to be linear and pointing from bottom left to top right. But its not. Had you invested in this in December 2006, you would have lost money all the way till September 2007 (just about breaking even in May 07 and then dipping again). So your capital was not at all protected.
I would wager that a considerable proportion of the gains were skimmed off as performance fees, brokerage and transaction taxes. Meaning, the brokerage - Sharekhan itself - was the beneficiary of the fees and brokerage, while you underperformed the market. And they charge you the HIGHEST brokerage fee they offer - for retail investors they have options for fees lesser than the 0.05% they offer to their "premium" PMS customers. Meaning: Even if you lose money I don't care, I am going to take as much of your money as fees or brokerage.
The other scheme - a discretionary one this time - has done even worse. With the Nifty severely outperforming the scheme (Nifty went from 3908 to 5907, a 50% increase), the Star Nifty scheme returned a miserable 23%. Again, I don't doubt the manager's prowess - it could be that the lower returns are due entirely to fees and brokerage costs. But to you, the investor, how does it matter? Your money is gone anyhow.
What we should do is try and create a system which a) outperforms the Nifty on the way up (over a 1 year period or more) and b) looses less (or even gains!) if the Nifty goes down. In part b) one should note that all that matters is absolute returns - so preferably every single month or quarter (based on the timeframe of the model) should be positive in the absolute sense. (i.e. balance after the quarter should be greater than balance before)
I don't know if such a system exists and if it can be used. At Moneyoga, we are researching such systems and as we move along we will discover new opportunities and post them online. Given that the Nifty Thrifty is probably a trend-following measure maybe there is something we can check real fast. Watch this page.
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>Common sense tells me that on a macro level when the foreign money wants to invest in Nifty, it will be unwise to prove your genius to beat the Market Index.
As Indian market becomes more globalised it will become difficult, as experience in US during the 80′s and 90′s have shown that majority of actively managed funds trailed the index.
11.21.07 at 1:45 PM
>True. We’re only trying to emulate “outperformance” examples of which exist in some of the traders and investors of Wall Street (Peter Lynch, Gil Blake, Ed Seykota, John Arnold, David Shaw etc.) who have consistently beaten broad indices over huge periods of time.
What we know is that such people exist.
If you were to use statistics, you would never start a company because 90% of startups fail. People say active investing doesn’t work for the same reason – and I choose to try and become the 10% instead, just like I choose to start a company.
11.21.07 at 1:59 PM
>Wondering if the ETFs can be a better option? The cost is low and the return are close to the Nifty growth. I mean the Benchmark Nifty ETFs.
What do you say, Deepak?
11.21.07 at 4:38 PM
>ranjan: ETFs and the NiftyBEES is a fantastic option. I’m holding a reasonable % of my portfolio there, but I still maintain a 20% trailing stop loss. My effective buy price is about 410 or so (remember this is 1/10th of hte Nifty) but i’ll hold it until it retreats to 500 from where it is today. ( 563, it was about 600 at the peak).
The reason I get out at 20% is that indices rarely jump after a 20% fall – the fall is either much worse or the index hangs out there for a while.
But yes, if you are bullish, the best thing to do for a passive investor is to buy the index.
11.21.07 at 7:35 PM
>Your arguments are incomplete. For example you cant outperform the nifty by buying the nifty in a one sided movement of the market. So only over time of going long and short does outperformance happen. Still outperformance is not needed to make money, consistently making money is needed.
In your examples you are referring to mutual fund types and not Wareen Buffets. His historical record is at 25% odd and that was enough to make millions, he never focussed on outperformance. But niether did value investors like Peter Lynch.
Lastly the they mantion somewhere that there are only 20-25 trades a year and performance mentioned is after costs. 25 trades in derivaties at 5 paisa brokerage dosnt amount to huge costs so you are wrong that the product is overcharging clients for trading costs etc.
11.22.07 at 5:26 AM
>Hi,
Sharekhan PMS fees are as follows :
2.5% per annum AMC charged every quarter, 0.5% brokerage 20% profit sharing after 15% hurdle is crossed-chargeable at the end of the fiscal year.
Way toooo much for such a laggard. Most PMS charges similarly and returns are abysmal in most cases. True Deepak, no dearth of fools here.
JACKSON DAVID
11.22.07 at 5:36 AM
>anon#1: In hindsight Nifty was only single sided – up. But then, so was the Dow from 1982 to 2007 (if you consider the few drops in the middle to be minor blips) If you are in a huge bull market you look for people that will BEAT the index, otherwise you invest in the index.
Remember we have had at least one 25% drop (May 2006) and two 10%+ drops (Feb and Jul-Aug 2007) so performance should have scaled up, not down.
I somehow don’t think there were only 25 transactions – that’s their goal but it may not be the reality. Would love to see if that’s true.
Warren Buffet is not an investor in the same sense as you and me. He owns his companies and can change the way they perform from his board presence. You should compare him with say the Ambanis or with Tata. Not us.
Mutual funds and hedge funds are the only comparables. We actually trade (i.e. we don’t invest for dividend, but for capital appreciation) which simply means outperformance should be rewarded, period.
Sharekhan has not outperformed, and it has not saved your capital (only if you invested in the beginning would you have saved capital, but look at the nifty or most mutual funds too, they would have done the same.
Anon#2: Interesting, but I think the fees for this product are different than their regular PMS. They have no AMC charges for hte product, and the brokerage is lesser (though profit sharing may be the same, there is no mention of a hurdle rate)
11.22.07 at 6:52 AM
>The Nifty Products of sharekhan carry Zero AMC fees and 0.05% brokerage. The higher nos you havementinoed are for the long term fundamentals based PMS schemes. The technical analysis based products dont carry amc fees. So they dont make any money till you do.
11.22.07 at 11:00 AM
>Somewhere it surprises me how many people focus still on outperformance. The concept of outperformance itself assumes a bull market in action. So the crash of 1987 in the US today looks like nothing so we dont consider it imp in the outperformance game. But it was. So reducing portfolio volatility and protecting against pitfalls need to be part of investment strategy. Compounding of capital should be the objective and not outperformance and then suddenly it makes sense. Its easy to do the traditional comparison of mutual funds but mutual funds themselves are therefore a bull market concept. which is why 80% of them underperform. Give them 2 bear markets and they are history. So captial protection with compounding of returns at a return lower than market return over long period of time with little trading costs sounds great.
11.22.07 at 11:35 AM
>indiacharts: good point. i think one should also take into consideration a 10% lower than reported performance as these transactions will involve short term capital gains.
anon: I do agree, if you do care about capital protection, buy arbitrage funds. They are the guys that offer a steady 10% or more growth (nearly) year on year, and you save on capital gains taxes if you hold over a year.
What sharekhan does is not capital protected. Forget the intra-month dips, let’s just take the NAV at the end of every month. For a capital protected product, the NAV at the end of every month should be higher than the last month.
Forget month, even if you take each quarter since then, that theory does not hold good.
Feb 06 to May 06: up
Jun 06 to Aug 06: down
Sep 06 to Nov 06: up
Dec 06 to Feb 07: up
Feb 07 to May 07: neutral
Jun 07 to Aug 07: down
Sep 07 to date : up
I don’t call this capital protection at all. And this is quarterly; most investment advisors in the US are judged on a monthly performance and SD.
11.22.07 at 4:34 PM
>Hi Deepak,
Please check the below link for a similar kind of system:-
http://sagecapital.wordpress.com/2007/06/23/infosys-a-study-in-following-trends/
Nitin Jain
11.23.07 at 5:18 AM
>I have few questions
1. What do you mean by buy index.
2. How can we by index. I habe icici direct account. Can i do it from there?
3. Is it good go buy index?? How does it help to gain.
Regards,
anoop
11.24.07 at 4:50 PM
>The symbols for Benchmark ETF’s on ICICI Direct are as follows:
1. NIFTY BEES – NIFBEE
2. BANK BEES – BENMUT
3. JUNIOR BEES – NIFJUN
4. LIQUID BEES – LIBEES
5. GOLD BEES – GOLDEX
You can buy them like any other stock
11.24.07 at 5:06 PM
>Great article in Ajay Shah’s blog.
http://ajayshahblog.blogspot.com/2007/11/great-article-on-advisors-and-fund.html
Buy and Hold wins.
Good luck to punters.
11.26.07 at 6:52 AM
>anon:Good luck to you too,mate. I would like you to speak to the guys who have bought and held Arvind Mills since 1992. and a gazillion other stocks – of course you only see the survivors, because they’re there today to see, no?
Buy and Hold doesn’t always work, in fact it is doomed to not work at the end of a bull cycle.
That is an excellent article though. It omits that some hedge funds (not mutual funds) have consistently beaten the market – Bill Dunn, John Henry etc. for over twenty years. But it is very valid for mutual funds, definitely.
11.26.07 at 8:39 AM
>And whats the update for the year 2009 – 2010 ????
I guess lots of people are seeing their wealth erode in Sharekhan's Nifty Thrifty !!!
Ones who entered in April 2009 with 5 Lacs now (20/01/2010) only have 4.03 Lacs as their portfolio !!!!
01.20.10 at 12:14 PM
>I invested 5 lakhs in Nov 2009. Today my NAV is 4.54 lakhs. I have seen profit of Rs 3k once in last 7 months.
The fund managers absolutely gambles with your money. Don't ever invest in it.
06.09.10 at 12:29 PM
>Yes Sharekhan PMS is complete piece of junk. I have invested in and you can read my views about them here http://shabbir.in/sharekhan-pms-review/
10.15.10 at 3:43 AM