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Many investors ask me this simple but ever perplexing question. In MF I know the return of the fund n return of my portfolio invested in d same fund. The returns do not differ. But when it come to PMS, why is there a big gap between ‘model portfolio’ return n our ‘own portfolio’
returns even when invested in the same strategy. In fact I looked at one portfolio dated June 30, 2020. Model portfolio on June 30, 2020 was showing positive returns but on the same day the clients’ portfolio in the same PMS strategy was showing negative returns.
Well, there r
Well, there r
some genuine structural characteristics and issues with PMS and when coupled with some clever marketing it becomes nearly impossible to dissect. However here is my attempt to figure out why this happens:
- PMS model portfolio starts with some weightage in various securities. As
- PMS model portfolio starts with some weightage in various securities. As
time progresses, the underlying securities perform differently and the weightage of the securities changes on a daily basis. Individual weightage of the securities in the model portfolio will have different weightage on different dates and consequently different performance.
- for example the model portfolio starts with say 10% weightage to say HDFC. Over the course of time HDFC stock does well n weightage in the model portfolio keep growing and may become 15% weightage in the model portfolio. Suppose the investor is investing money now then in the
Investors’ portfolio the PMS manager may allocate just 10% in HDFC as against 15% allocation in ‘model portfolio’. Now both ‘model portfolio’ and ‘actual portfolio’ will differ in performance depending upon the performance of HDFC share.
Another issue is the view of the FM on a particular security. FM may have security in the model portfolio but FM may not buy the same security in the investor’s portfolio. For instance model portfolio has Bajaj Finance. The FM may think that Bajaj finance is fully priced in so
FM does not wants to buy more of it but also u will to sell as well. Even the given case model portfolio will have Bajaj finance but investors’ portfolio will not have it. To that extant the portfolios will differ in performance.
one more point is portfolio construct. The FM will take time to deploy cash. If during this period market rises then the dent in the performance of the ‘actual portfolio’ may last for a longer period of time.
- ‘model portfolio’ is shown to be fully invested.
- ‘model portfolio’ is shown to be fully invested.
However in ‘actual portfolio’ of the investor the FM may keep cash. Cash holding can be 10% plus. If market rises then ‘model portfolio’ will show good numbers and product will be marketed. If market falls then ‘actual portfolio’ will show better results by virtue of cash holding
‘Heads’ I win ‘Tails’ you loose! Here comes the clever marketing.
- in ‘model portfolio’ whether the FM takes closing price/ lowest day price in buy and highest day price is sell is discretionary.
- never ever go by performance of a ‘model portfolio’. Go by sebi prescribed
- in ‘model portfolio’ whether the FM takes closing price/ lowest day price in buy and highest day price is sell is discretionary.
- never ever go by performance of a ‘model portfolio’. Go by sebi prescribed
performance of all the investor minus expenses.
- if any PMS is marketing their PMS showcasing ‘model portfolio, then it’s a red flag.
- ‘model portfolio’ is like mannequin. All clothes look good on mannequins but may not good on you!!!
- the bottom line is this that the MF
- if any PMS is marketing their PMS showcasing ‘model portfolio, then it’s a red flag.
- ‘model portfolio’ is like mannequin. All clothes look good on mannequins but may not good on you!!!
- the bottom line is this that the MF
has single NAV and single portfolio and one journey. In PMS every investor will have a different portfolio than the model portfolio and the journey of individual investors will differ. Even for the same investor it may differ if they have given money at different points of time.
