11th January 2012

Product Confidence - Equities

Its more than 4 years since the big NFO wave of 2007 - and we are still waiting for some returns. Newspaper headlines scream out that India was among the worst performing markets in 2011. Has that sapped advisor confidence in equities? Is there some hesitation in pitching the India growth story to impatient clients? Here is the pulse of leading advisors on their confidence in recommending equity funds to their clients:

It is indeed gratifying to observe that advisors across the country continue to have very strong conviction in recommending SIPs and a fairly strong conviction in recommending STPs for lumpsum investments. The relatively lower confidence for STPs over SIPs is clearly understandable, given the persisting weakness in markets - nevertheless, an average confidence score of 7.9 out of a maximum of 10 is quite a strong demonstration of confidence. The confidence in SIPs is however truly noteworthy - with an All India score of 9.0 out of a maximum of 10. A full 59% of all advisors actually opted for the maximum score of 10 - with the proportions being strong across all regions.

SIPs are truly coming of age - with advisors continuing to repose such strong confidence despite poor near term results. The belief in the long term India growth story is obviously unshaken and the power of SIPs to navigate through near term choppiness is fully internalised by the advisory fraternity across the country. The challenge now is to transmit this comfort to nervous investors who fret about near term weak performance and are either stopping their existing SIPs or are refusing to start new SIPs.

Within equity funds, advisors clearly prefer recommending large cap funds - perhaps due to their ability to navigate better through a downcycle in the economy. Diversified no cap bias (go anywhere) funds also find good favour among advisors. Mid and small cap and multicap funds are not exactly on the recommendation lists of many advisors, and sectoral and thematic funds seem a clear NO NO at this point of time. The mood seems to be of not getting adventurous - stick to large caps and well diversified funds - just get the equity allocations into client portfolios for now, without striving for too much alpha from anything remotely exotic.

Product Confidence - Fixed Income

2011 saw much more activity in deposits and bonds rather than in duration oriented debt funds. Within the mutual fund world, FMPs were the clear favourite. How are advisor preferences changing as we begin 2012? Are prospects of capital appreciation in duration funds prompting them to shift attention towards duration funds rather than bonds, deposits and long term FMPs? Here is the pulse of the leaders on product confidence in the fixed income space :

Preferences seem to be perceptibly shifting towards debt funds, and away from fixed income instruments. With advisors expressing strong confidence in a bonds bull market (see Market Confidence findings), they seem to be placing their bets on mutual fund products to capture capital appreciation rather than look at secondary market prices of bonds to do this job for them. A look at the percentage of advisors who have given a 9 and 10 score for debt funds, when compared to the 9 and 10 scores for bonds and deposits is a telling comparison.

Within types of debt funds, its short term funds and not FMPs that seem to be the hot favourites - though FMPs come in at a respectable second place. Close on the heels of FMPs though are dynamic bond funds - a clear indication of the fact that they believe 2012 is likely to be a good year for bonds. However, the lack of confidence in income and gilt funds perhaps points out to the fact that advisors acknowledge that there could be a lot of volatility this year in bond markets - hence better to play safer with dynamic bond and short term bond funds. Credit opportunities funds do not seem to be getting too many votes - advisors are perhaps worried that a sluggish economy can increase NPAs - may not be a great time to get adventurous on credit quality.

Product confidence - hybrid funds

Hybrids is one segment that the MF industry gave huge attention to during 2011 - perhaps more than ever before. Whether it was the good old balanced funds and MIPs or a slew of new capital protection oriented funds, multi-asset funds, asset allocation funds - we saw a lot of action last year in this space. How confident are advisors in recommending hybrids? Has the MF industry succeeded in capturing their mind share for this category? Here is the pulse of the leaders on their confidence in recommending hybrid funds :

Hybrids are gaining traction - with an average score of 6.0 - though they still have some distance to go to match equity SIPs (9.0), equity STPs (7.9) and debt funds (8.1). South seems to prefer hybrids less than other zones - but not by a very wide margin. A look at the distribution across the percentages shows that there are very few disbelieves and few total believers - there is a bunching in the middle scores of 6, 7 and 8. Again, perhaps reinforcing the notion that the category is still gaining traction.

When it comes to the type of hybrids preferred, there seems to be a clear preference for the tried and tested equity+debt combo packs of balanced funds and MIPs. Capital protection oriented funds score quite poorly - which is surprising considering the business volumes they have been generating in 2011. Is there a belief now that open ended versions are better positioned to capture gains in a falling interest rate environment?

Multi asset products (equity + income + gold) seem to next on the pecking order of preferences, after balanced and MIPs. Other variants of gold + products (income+gold and equity+gold) do not appear to be fancied by advisors.

Product Confidence - Gold funds

Gold funds were the darlings of 2011. The category saw its best year ever in terms of net sales - on the back of a robust price performance of gold for most of the year - barring the last few weeks. Has the year-end correction made advisors nervous about gold? Are they still as confident about gold going into 2012 as they were last year? Here is the pulse of the leaders on product confidence in gold funds :

Among all MF asset categories (equity, debt, hybrids and gold), gold funds come in last with an average score of only 4.7. Advisors in the Western region seem to be most cautious about gold - they are incidentally also the most optimistic about equity market performance in 2012. Clearly, advisors seem to be following the dictum that the darling of last year should not be chased this year - a welcome sign of learning from past mistakes. A look at the percentage of advisors who have opted for scores of 8, 9 and 10 tells a clear story of caution on this asset category.

Product Confidence - insurance

Which categories of insurance plans are advisors most comfortable recommending to their clients? Do traditional plans now score over ULIPs? How convinced are advisors about term plans? Here is the pulse of the leaders on insurance product confidence :

Two messages come out very clearly from this data :

1. There is huge buy-in for pure term plans among leading financial advisors. It is for the MF industry to figure out how it can capitalise on this and introduce and promote more SIPs with term plans rolled in.

2. Pension products seem to have received a thumbs down - perhaps due to all the regulatory intervention last year in this segment. Again, an opportunity for the MF industry to try and step into this space and create products and solutions that are retirement focussed.

Which products are you confident of recommending now?

Do you share these advisors confidence in SIPs, STPs in equity funds and lumpsums in debt funds? Do you too prefer large caps over mid caps and thematic funds? Are you less confident now about recommending gold funds? What are you most confident of recommending to your clients now? Share your thoughts by posting your comments in the box below - its YOUR forum !