DSIJ.in JULY 8 - 21, 2019 I DALAL STREET INVESTMENT JOURNAL (^75)
MF Page - 09
Quarterly Portfolio Review
Not much changes in a quarter, but conducting review of your
portfolio every quarter protects you from any surprise when
you do your thorough annual final review. The goal of the
quarterly check-up is to find out any major changes within your
holdings and portfolio overall. In order to keep your quarterly
review short and simple, you will need to review items within
three key areas of your portfolio.
Performance-Related Data - The first question that
comes to mind of any investor while reviewing his portfolio is,
how much money or return has been generated by the
portfolio. The next thing to look for is, which holdings have
generated best returns or funds that have generated negative
returns. These are the funds that need your extra attention
during your yearly review. These returns should not be viewed
on absolute basis, but on a relative basis. It may be possible that
your worst performing fund may be one of the best among its
peers. Therefore, you may still hold the fund if it is giving you
the benefit of diversification and reducing overall risk of your
portfolio. Therefore, the performance a fund needs to be judged
based on its relative performance and not on its absolute
performance.
Portfolio-Related Data - During your quarterly review, in
portfolio-related data you check primarily for two things. First
is the asset allocation and second is the sector allocation. In
asset allocation, you need to assess if and how the big picture of
your portfolio has changed. It may happen that your equity
allocation needs to be at 60% of your portfolio, however, now it
has been at 64%. This may not be due to rise in your equity
portfolio, but it may be due to fall in the debt part of the
portfolio. Therefore, keeping a track of the reason for change is
important to take appropriate corrective action at your annual
check-up.
Besides overall asset allocation, you also need to also check the
sector limits of your portfolio. It may happen that finance or
any other sector has crossed the limit that has been set by you
or is beyond your tolerance level. This should not trigger any
buying or selling of the funds. The objective is to keep tabs on
major portfolio-related changes as they develop. This will make
your year-end review easier.
Fundamental Changes - Any fundamental changes in the
funds that you are holding need to be further probed and is
probably the most important part of your quarterly review. For
example, if the fund
manager of one of your holdings has changed, you need to
ascertain if the change in fund manager will also lead to change
in strategy or it will remain intact as dictated by the fund house.
While it is not uncommon to see management change over a
period of time, frequent changes should raise a question as
change in the fund manager often leads to a shift in the
investment style.
Second, check the history of the fund manager who has
replaced him. If he is from the same fund house, chances are
high that not much is going to change. Above all, in such cases,
working of a fund house need to be analysed deeply in terms of
the selection of stocks and building of portfolio.
The other major fundamental change that can take place within
a fund is rise in expense ratio or portfolio turnover or mergers
or acquisition of the fund you are holding. Any of these
changes also warrants an immediate attention by you.
Annual Portfolio Review
No amount of your quarterly review will replace the annual
review of your portfolio. Although nothing new need to be
reviewed other than what you have done in your quarterly
reviews, you need to go deeper and make necessary changes.
While doing your annual portfolio review, you need to check
the following items:
Major Asset Allocation - At the end of the year, chances
are high that your asset mix in terms of equity, bond and cash
have changed. It may happen that you are in year 2017 when
equity portion of your portfolio has outperformed other asset
classes and hence its total weightage has increased.
Nonetheless, in year 2018, debt and especially long duration
debt, has performed better than most of the other asset classes.
In both the above cases, you need to bring the asset allocation
to your original or planned asset mix. If you fail to do this, you
may find your portfolio underperforming. Moreover, as you go
closer to your goal, it is good to shift your funds to more
conservative assets so that you do not face any problem in
meeting your goals.
Keeping your assets in the prescribed limits helps you to keep
your portfolio's volatility in check and even helps you in
booking profit in asset that has performed well. Excessive stock
exposure will make your portfolio much more vulnerable to
stock market slumps. At the other extreme, investing too much
in debt funds could hamper you from meeting your goals.
jeff_l
(Jeff_L)
#1