100 meter "dash" runner's performance cannot be compared with a "Marathon" runner

We all agree to that fact. How many of us know "investment" is a marathon-race and not a 100-meter-dash? One of the print-media article, has recently projected the PMS performance on a "one-month-return" basis for the month of April-2019.

Any prudent investor would know, investments cannot be assessed on too-short-time frames like one-month. If we have to judge the investment return comparisons and performance of the Money-Managers by the shortterm returns, we may arrive at "mind-boggling" figures.

For example, as per the article, SEBI Reported one month returns for Landmark Capital Advisors Pvt. Ltd., is 15.34% gain for the month of April-2019. Through our resources we found Landmark Capital Advisors Pvt.Ltd Focus on Real Estate Debt Structure and this 15.34% is an annualized return.

The article appears to be feeling pity on the investors, saying "90% PMS failed to deliver even 1 % return in April". We are quite confident that such ambiguous comments on "one-month-performance" of PMS Industry will be ignored by any sensible investor. We are also aware most of the PMS investors have invested after proper "risk-profiling", in-depth assessment of the strategy, and apt matching of the product for their wealthbuilding time-line.

However, We at PMS Bazaar research team, were taunted by such a novice comments and felt the urge to analyse the PMS industry as a whole, with focus on FY 2018-19 and will continue to do periodically.

We are quite satisfied with the performance of the PMS industry, as we understand the "wealth-buildingprocess" needs time to grow. The full report is produced for the benefit of all the Investors.

We have taken - AUM and Number of clients for the past 5 years data for Top 10 PMS based on AUM (Minimum 500 client's and Excluding EPFO/PF AUM ) 8 PMS out of the TOP-ten, the table is appended. The other two PMS - ASK Investment Managers and OLD Bridge capital Data's are available from Feb 2016 and Aug 2016 respectively. Old Bridge started their PMS operation from Aug 2016.The data points of these two PMS are tabled separately. It is quite evident from the data the AUM and the client base have increased multi-fold during the past 5 years.

Hope this analysis on the PMS industry will enable the investors to confidently-ignore the Novice media head-lines.

The PMS-Strategies performance during the financial year

From the PMS Bazaar universe of 98 PMS strategies , We have retrieved 1 year absolute return data of 89 Strategies which have completed 1 year. It is interesting to note, out of the total 89 strategies analyzed 45 strategies (more than half) have yielded positive return for the FY-2018-19, 7 strategies have yielded flat returns (either < 1 % gain or <1% loss), and 37 strategies have yielded negative returns. We have also provided the split-data on the basis of reporting style (Model or aggregate). The overall numbers are tabulated.

It is prudent for any investor to wait for at least Five years for any strategy to yield gains. However, investors tend to get affected by shorter-term returns due to fear-psychosis. The inference of the financial year (oneyear) return reveals, in spite of the negative economic activity dominated FY-2018-19, like Trade-wars, NBFC problems, and bad Business cycles, more than half-the PMS-Strategies have given positive yield. During the same period of past one year, BSE-small-cap & Nifty-Mid-cap had given negative returns, while Nifty & BSE500 has gained. The one year values are tabulated for reference.

The September Market-correction and the Recovery

Markets and many stocks (especially the Mid & Small Cap) had declined after the IL&FS financial Liquidity crisis. The recovery till March 2019 was mostly in Large-cap. Hence, we have specifically analyzed PMSStrategies on a monthly basis from September to March-2019. If we consider August 2018 as the investment month for an investor, only the Nifty-50 index had recovered back as on 31-March-2019, BSE-500, Nifty-Midcap-100 & BSE-small cap, indices have not recovered back to their August-2019 level.

A Comparative chart is posted along. The recoveries during this period in indices are tabulated on absolute return basis.

Out of the 59 strategies under Model-portfolio, 31 strategies have outperformed their benchmark indices and 28 have under-performed and only 5 Strategies gave negative returns. Out of the 34 Strategies under Aggregate-portfolio, 12 have out-performed and 22 have under-performed and only 6 PMS-Strategies gave negative returns during this 6 months recovery cycle.

On deeper analysis of the PMS activities, portfolio churns were effectively initiated by many Portfolio Managers, selling-off the affected franchises from the portfolio and increasing cash calls. It is further observed that the cash was systematically invested on different sets of fundamentally stronger stocks. We have not tabulated such franchise specific activities as the list is too-long, suffice is to say, we have observed most of the PMS have acted professionally as stipulated by their thematic and philosophical rules laid down to mitigate the risk, during such bad-market-cycles. The Portfolio managers established their trust worthiness to befit the role of the fiduciary function by increased visits and on sight assessment of various franchise.

The realistic approach to assess any investment vehicle would be 5 years and beyond. The indices had performed as tabulated during the past 5 years (as on 31-March-2019).

From the PMS Bazaar universe of 98 strategies, 40 PMS strategies has completed 5 Years & above. The 5 years return analysis on the PMS is more re-assuring for the investors. The indices return and the Alpha creation are tabulated.

Inferences & Conclusions

  1. The 2018-19 FY had been volatile year and the market-value of many mid & small cap franchises eroded more than 50%.
  2. The recovery of the Large-cap was rapid and many of the mid & small caps are yet to recover to their April-2018 Levels.
  3. Only 40% of the PMS-Strategies have given negative yield during the FY-2018-19. The inference is that, the investors who had been wise enough to match their risk appetite aptly are either holding a "no-loss" portfolio or they are knowledgeable enough to sit-tight on the notional loss made in the portfolio during the financial year 2018-19.
  4. It is very interesting to note (except for very few strategies) almost all the PMS-Strategies studied had yielded better CAGR return than the indices.
  5. 95% of the PMS-Strategies studied have given ALPHA over their relative bench-mark in a span of 5 years.
  6. The apt matching of risk appetite will make the investor comfortable, even during a volatile financial year.

Caution and Advice

  1. This study was conducted From 98 strategies of PMS Bazaar universe.
  2. There could be other PMS-Strategies who had performed better than the Strategies listed in this report, or worse than the strategies reported in this report. However, the overall study inference may not be affected much by these left-out strategies.
  3. The past performance of any strategy cannot be the Guarantee for the future performance.
  4. Even one year is not the right (sufficient) period to assess an investment vehicle, hence do not get disturbed by "columns" written in media by Novice-columnists assessing one-month performance of the PMS industry
  5. Risk-appetite matching and the assessment of "risk-adjusted-return" study are important before investing.
  6. Have patience to while-away temporary volatility and seek professional advice to assess your risk-appetite (and matching with the PMS-Strategy)

Happy Investing

PMS Bazaar Research Team

For more details, please feel free to contact us at info@pmsbazaar.com.

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