Value of independence – a response to our critics

A recent ET Wealth study done jointly with us, had many of our distributor and advisor friends lash out at us on social media. The same happened some months ago when we took a firm call on Franklin funds. We thought we should not react but since this appears to be repeating, we decided to ‘respond’. 

We have several ‘buy’ calls on funds. No distributor/advisor criticizes us for wrong judgement there. Whenever we give ‘sell’ calls, we are hit out in the social media (without naming us of course – they are gentlemen) as being ‘immature’ ‘rash’ and that we ‘need schooling’, ‘we do this for a hobby’  or ‘performance alone does not matter’ etc. These comments are never from investors (they give us more constructive feedback, thankfully). They come from doyens in the advisory industry whom we respect and from whom we learn, along with several respectable distributors. And many are but good friends in Chennai! It’s a small city here folks.

To these doyens and distributor friends, we wish to say –  we are open to learning. We welcome criticism. But we prefer them to be issue-based and factual. A general dig about our ‘testing labs’ doesn’t help us improve, you know! 

Value of independence - a response to our critics

So, here’s the thing: 

When we gave a ‘sell’ call on Franklin fund house, it was only partly based on the performance – our detailed note had it (not our problem that the media took excerpts).  It was a judgement call on how a fund house that put investors through painful times can be depended upon again. It is our view and we stated it clearly. Why does it upset distributors? Please feel free to counter it with a rebuttal based on facts and logic. 

When we wrote on HDFC Top 100 or ABSL Frontline Equity a year ago on why we prefer index funds to these large caps it was based on sound evidence of exceedingly inconsistent performance. It remains the same. 

For those who question us on our testing labs, we wish to make two points: One, our process and our thought process: We like to follow a process rather than just tell our customers ‘X fund manager is a good guy. We trust him. He has conviction in his calls’. That is not our way. 

We respect all fund managers and their difficult task. But to us, performance matters and consistency in performance matters the most, however small or big an AMC or fund manager. Our numbers time and again show that consistency pays off in the long run. Our ‘testing labs’ have enough ‘metrics’ to show us ‘steady relative underperformance or outperformance’. 

Yes, we do go beyond numbers to the ‘prudent portfolio construction’ that someone asked us to measure. Every fund’s portfolio has a story to tell and means to be prudent. One can decide not to tolerate the portfolio underperformance, or one can give a narrative of conviction and decide to wait. Where it is not clear, we do hear what the fund manager has to say. We recently did that for a midcap fund too! 

But in this qualitative second step, it boils down to what convinces us or the investor. And that becomes a subjective call.  That is where we take comfort in process. We take comfort in a fund manager sticking to his/her process but willing to make changes when the performance chain breaks. We think that is an important quality in fund management. Course correction shows willingness to change and improve. 

Instead, to ask an investor to wait it out because a fund cannot perform or will perform in spurts and go silent later is not quite convincing, is it? And for 3 years, 5 years? Does an investor need a fund manager and an advisor on top of it, to say this? He might as well throw a dart! 

Two, investor behaviour: There is little reason for an investor to tolerate prolonged underperformance simply because the odd year will give him the bounce back. Which year will that be? In Tamil, there is an adage: ‘thai pirandhaal vazhi pirakkum (come the harvesting Tamil month of thai in January, there will be a new path). A poor fellow asked ‘endha thai?’ (which January will it be?) The odds don’t favour an investor in the face of prolonged volatility and stark underperformance. 

 Our own study of several thousand customers in an earlier firm, tells us that investors who are long-term will not put up with poor performance beyond a year or two. 

Secondly, there is a HUGE difference between a young investor with a portfolio of a few lakhs and another with several crores. The latter is affected very little by underperformance in a couple of funds while the former does take an impact when his few thousands of SIP underperform. 

Besides, he/she now has a poor experience. He will not return. 

And pray, when they have better alternatives in MFs, what favour are we doing by asking him to stick to an underperformer? Is it tax? It is the investor who should be concerned, not the advisor/distributor. Please don’t take an investor to be a fool! Is it commission? In that case an investor should be even more concerned!

 For 20 years or so ‘the buy and hold’ mantra has stood investors (and distributors) in good stead (and still does). But that is meant to ride out the market volatility and the market underperformance – NOT FUND UNDERPERFORMANCE when a whole bunch of other funds manage their act! 

If investors did that 15 years ago, it was because they could not keep track of performance. It was too cumbersome to even switch funds! Any reason they should act the same now, when they can see their fund’s performance with a click and there are better and clearer alternatives? Even if that means simply an index fund? 

Besides, the 20-year argument is not going to help an investor who has, say, 7-12 years to accumulate enough returns for their children’s education, does it? Is 10 years too short a period to expect a fund to deliver?

And who are we – as advisors, researchers, or distributors to ask investors to put up with underperformance for no reason? Who are we to insist that an investor MUST hold THE SAME FUND for 20 years to see results? Who are we to bask in the past glory of an AMC’s 25 years track record when a 25-year-old doesn’t give two hoots about it? 

And how long are we going to say not holding ADAG stocks helped a fund in hindsight or not going near infra and real estate helped an AMC in 2008? Of course, it did help! Good for the investors. MOVE ON and show us what funds do NOW!!! 

It’s about time the investor’s ‘guides’ took a relook at changing investor preference, changing product line-up and changing ways to invest, track and review. Why are index funds a taboo in many distributors’ books, even today? 

And finally, our calls on funds are our views. We will stay accountable to investors who take them. Why does it bother so many of our distributor friends? After all, they have their own processes and outcome to share with their clients? 

Also, please be assured – we have our own ‘research game’ and we don’t need any ‘schooling’. We have our own track record of writing and educating investors through various forums including media. And we definitely have a track record of creating wealth for thousands of grateful investors across the country through our research and recommendations.

Gentlemen, you’re all welcome for a coffee session in our office if you want to know if we have ‘metrics’.  We will be happy to show you. The learning can be mutual! Avoid ‘virtual’ mudslinging and troll-like behaviour. Doesn’t do anybody any good. 

Let’s move on. It’s not 2001, its 2021! The investor is king not the manufacturer!!

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33 thoughts on “Value of independence – a response to our critics”

  1. I am working as a wealth manager at a leading mutual fund distribution house and I concur with everything that Vidya has written in this article and what prime investor stands for.

    In our organisation there are diverse views, some believe in stay put for 20 yrs, some would be okay putting it in franklin, some would be who wouldn’t care much about the past glory of an amc but rather focus on how consistent that have been over the past few years and be okay to switch out if it doesn’t deliver. I guess we are all shaped by our own journeys in to the market. But hey everyone is entitled to have their own view and be accountable to their investors for the view that they hold. There shouldn’t be blind bashing because you don’t subscribe to a particular view. So good job for standing tall to the unwarranted criticism that is being thrown at you guys.

  2. Team PrimeInvestor – I am a paying subscriber and I value your research and recommendations.

    To share how I use these inputs :
    A) I have my own need analysis and risk tolerance – leading to an asset allocation
    B) I read through Prime Investor’s research and recommendations …and choose the ones which fit my needs
    C) I use a ‘Direct Only’ platform to invest and review my portfolio annually

    While I do rely on PrimeInvestor, I take the final decision to invest or to hold or to exit and I am responsible for my decisions. The buck stops with me. The day I feel PrimeInvestor is not adding value, I have a choice not to subscribe and I will use that. But currently the fact is that I have just renewed my subscription.

    Do keep up the good work !

  3. Started investing in MFs since 2013 through a known investment advisor. Whatever funds were suggested by the advisor, I invested in it. It was almost like a doctor prescribing medication and I following it blindly. Overall returns till March 2020 was around 8.5 percent. In this entire period of 7-8 years not even once was I told by the advisor that there is a Direct plan of MFs which could have added 2 extra percent to the returns. I got to know about the direct plan investment in MFs only after subscribing to prime investor. I feel that there is a strong conflict of interest by investment advisors when they recommend a fund to their clients. The commissions. The commissions have to get converted into a flat fee or a yearly advice fee based upon performance . Primeinvestor subscription model takes away the conflict of interest completely and is a must for any retail investor who wants their money to grow without paying unnecessary middlemen.

  4. I am an investor in the Franklin funds and the way it was handled by them made me decide not to continue with them

  5. Madhavan Sridharan

    The very fact these responses re-iterates the outlook and the recommendations posted by the team. Indeed, I was surprised to read through such high flying pedigree & marquee fund houses and fund names in the list. I guess now and then one needs to emphasize that this “capital” market and one needs better returns for the money considering the risk involved and time period available. Thanks for standing tall and firm and by the very process which enabled at some point to say “invest” in these funds. It appears no body questions the process, only the out put which shows the bias and lack of financial empathy

  6. I am not sure what happened on social media.
    But I love your articles and rationality in Mutual Fund selection and various other issues that u guys are covering with logic and maths.
    No complaints.
    Keep up the good work !!
    Ignore trolls.

  7. Ramasami meiyappan

    Keep it up Vidya and team. You are doing an honest job. We are with you and carry on your great work.

  8. Thanks for calling Spade a Spade !! While we don’t need to switch on first instance of underperformance, but alerting the subscribers/customers on prolonged misses is definitely required. Thanks & more power to you !

  9. Many advisors/distributors criticze retail investors about their ability to select mutual funds. They invariably say that the star rating of funds done by Moneycontrol and Valueresearchonline doesn’t matter and needs to be ignored. Investor community wants to have an easy judgment/metric through which these advisors/distributors never attend. In such circumstances, when prime investor writes in ET that certain funds performed badly over the years, it should be scanned thorugh the lens of benefits to the investor and not via losing commision from selling it. The critics should point out what is wrong in the article than questioning the authority of the writer.

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