Capitulation marks the end phase that puts a full stop to a bear market and lays the foundation for the next bull phase.
Capitulation is a phase when the sentiment turns so negative that the bellwether indices, stock prices and stock valuations plunge to levels which fundamental analysts didn’t even imagine! When Warren Buffett asks you to ‘buy when there’s blood on the Street’, it is the capitulation phase he’s referring to.
Apart from the fund manager’s skill, a hidden factor that explains such return differences is the investment styles in which each fund is managed. Right now, many of the funds that have managed to top the charts with a 16% return are value-style funds, while the laggards are growth-oriented ones.
While one doesn’t know enough yet to comment on the veracity of these allegations, this does shine the spotlight on the issue of governance at mutual funds. There’s a lot of song and dance on whether listed public companies are managed in the interests of their shareholders. But what about mutual funds?
MFs are essentially custodians of public money, where both profits and losses are entirely passed on to unitholders. I give money to a fund manager to deliver a certain return from an asset class. But I am paying a fixed fee to him which he gets whether he does better or worse than the market. This pass-through nature of mutual funds means that the unitholder is most affected when the fund is mis-governed or mis-managed.
We upset a few of you with our call on some of the Axis funds last week 😊 Some of you commented on the blog and others raised tickets. We thought it would be better for us to respond through an article for the benefit of others as well.
13.4 million% returns. I’m not joking. That’s the price move of Bitcoin (BTC) in the last decade between 2011 – 2021. Now you know why you’ve been hearing so much about crypto in recent years and also the reason behind many millennials and Gen Z kids flocking towards these virtual digital currencies. In traditional finance, one has to take a 30% additional risk and invest in moderate risk equity mutual funds for an additional 5 -10% returns that equity might deliver over and above the risk-free rate.
Stable coins are simple crypto tokens that essentially mimic a stable currency like the Dollar, Euro, Pound, etc. According to coinmarketcap.com, there are about 10+ stablecoins that have a market cap of over $700 Million USD. Leading the pack are USDT (Tether USD) and USDC (USD Coin) with a market cap of $83 Billion USD and $48 Billion USD respectively.
In an M&A, company A buys out company B, triggering positive and happy noises in the market. Share prices of both companies jump in joy on the announcement. The news then gets digested and analysed. Shareholders of both companies realise after a bit, that they should have sold out in the first few days after the announcement, rather than swallow stories of ‘synergies’, ‘cost savings’, ‘market leadership’, ‘inorganic growth’ and other jargon that are usually peddled to sell mergers, in company releases and analyst reports.
When good quality businesses get beaten down in the markets, unexpected corporate actions and events sometimes act as a trigger to their re-rating. Is the HDFC merger with HDFC Bank a positive?
In January, mutual funds investing overseas came up to a roadblock. As we had explained at the time on these curbs on international funds, Reserve Bank rules limit the amount mutual funds as a whole can invest in foreign securities. The cap stands at $7 billion for all foreign securities other than ETFs and $1 billion for ETFs. That $7 billion mark was close to being breached. And so, SEBI directed international funds to close off fresh subscriptions until a new limit could be worked out with the RBI. Please read our earlier article on this subject to understand the background.
With the Budget done and dusted, most commentators have pronounced that it is a good Budget for stock markets but an awful one for bond markets. But in our view, whether you – as a bond investor – should celebrate or mourn post-Budget, will depend on your present portfolio allocation to bonds and the kind of bonds you own. Here’s how the budget affects your bond investments.