- Wealth PMS (50L+)
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.