The biggest conundrum in the mutual fund industry stems from: “Past performance is not an indicator of the future”. And yet, in the absence of any insights on what to look for, an investor ends up looking at past performance. A word closely associated with performance is ‘consistency’. But what is consistency? More linearity of returns? A narrow range in which returns fall? Consistently No.1 in returns or at least in the top quartile all the time?
Let’s look at practical experience on ‘consistency’ and ‘past performance’. Managing equity mutual funds is all about creating wealth for investors through investing in the stock markets. In roughly the past 10 years, at different points in time, different segments, sectors and components of the market have delivered. From 2004 till mid-2006, it was a secular bull run with mid-caps and value picks leading all the way. May 2006 saw a large correction and from then on leadership was with large-caps, real estate, retailing and infrastructure companies.
