A reader of this website asked me, what would a good diversified portfolio look like? My answer simple answer of a portfolio which would provide you consistent over average returns. Of course this answer was not simple in anyways since a lot of skill and thought would be required to construct such a portfolio.
In order to simply this issue, I went about exploring return achieved by equity mutual funds to suggest something meeting the definition set out above. This post is a result of that research.
Source: Data obtained from the Mutual Fund Association of Pakistan (MUFAP)
The criteria
I set up some basic financial and non financial criteria for assessment of performance which are as follows;
- 5 year average ROE should be over risk-free rate, in this case 15% per annum rounded up
- No of years in which ROE was below benchmark return of 15%
- No of years in which the fund reported ROE higher then average industry returns
- No of years in which negative returns was reported by the fund
Using this simple and straight forward criteria highlights the ability of the fund manager to out perform in bear and bull periods of the market.
The conclusion
Crosby Dragon Fund is the best performing equity funds with above average returns for the last 5 years. It is the only fund with 5 year average return of over 15%, it has reported a negative return only once in the last 5 years in year 2009, the year in which the whole equity mutual fund industry posted negative returns and it has posted returns below our benchmark of 15% only once in the last 5 years and the only fund to consistently report returns above industry averages.
It maybe noted that KASB Stock Market Fund has merged into Crosby Dragon Fund due to the recent merger of their asset management companies.
