Abhishek shares 6 insightful thoughts that every MFD must share with all their clients:
1. Everyone of 2014’s top 10 performing equity funds found themselves in the bottom quartile 4 years later – in 2018. They all bounced back into top quartile in 2020 only to slump back into bottom quartile (all but 1) by 2025. Use this data to highlight the perils of chasing top ranked funds.
2. The famous Pareto’s Principle (the 80-20 rule) applies equally to investors as well: 80% of your efforts are generally directed towards driving 20% of your outcome, while 20% of your efforts influence 80% of your outcome. Getting your big calls right – your asset allocation, your time horizon, your contingency funds – take up 20% of your time but influence 80% of the outcome while the rest 80% goes into fund selection, fund changing, market timing etc – which contributes perhaps only 20% towards final outcome. Consider whether this 80% of time is really being well spent.
3. We in the industry know that missing the 10 or 20 best days of the market can knock out almost half the returns you would otherwise have made in a year. But what we need to communicate to investors is that most of these best 10 or 20 days occur right around the worst days – in the depths of despair. Staying invested through bad patches ensures that you catch these big up days.
4. The famous economic law of diminishing returns equally applies to investor portfolios as well. A handful of well chosen funds gives you cap and style diversity. When the equity schemes in your portfolio are in double digits, you are probably owning the market at a higher cost than you could otherwise have.
5. The famous Occam’s Razor principle stipulates that between two workable explanations or strategies the simpler one usually wins. This is equally true for investors’ portfolio strategies and plans – a simple plan you’ll stick to beats a clever one you won’t.
6. The famous Chesterton’s Fence principle says that before tearing down something, understand why it was built. This is especially true for investors – when having an urge to discontinue a SIP due to underperformance over last 12 or 18 months, understand why you set it up in the first place. Was it to generate high annual returns or was it to create wealth for a financial goal 10 years down the road.
On the business front, Abhishek has been busy completing PGIM’s bouquet of basic products including a multicap fund, a MAAF and a large& midcap fund, which now puts the fund house in a position to compete across all key products, on the back of performance tailwinds that are now visible across the fund range as quality companies have finally come into their own vs value stocks.
He shares data that suggests that when you put all stocks into 4 quadrants across growth and quality, the high growth – high quality quadrant (which is where PGIM focuses on) is the only one that has delivered sustained alpha over last 21 years. All the others have either been flat or negative on alpha.
While the focus on high quality – high growth companies will remain undiminished, some tweaks have been made in a couple of metrics to align them with evolving market realities, giving fund managers a little more latitude within the framework. This, Abhishek says, will drive sustainable fund performance, as is evident from the early performance of all NFOs launched over last couple of years.
Fund house ownership which is set to transition from PGIM/Prudential (US) to the TVS Venu Group, will in no way impact investment processes and therefore fund performance. The incoming promoter’s stellar governance track record should be of great comfort to all stakeholders dealing with or investing with the AMC.