Fatty funds: Injurious to wealth?

Evaluating the performances of funds that have too many stocks

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History throws up conflicting examples. On the one hand, you have the legendary Peter Lynch's US-based Magellan Fund that bought a whopping 1,400 stocks and yet gunned out over 29 per cent annualised returns over a 13-year period, which prompted even the great man to once remark: "No wonder, I'd gotten a reputation for never having met a share I didn't like."

And on the other end is the riches-to-rags story of Morgan Stanley Growth Fund, famous for being the first foreign fund that launched in India and infamous for holding about 300 stocks in its portfolio at one point before exiting the country in tears.

With the past throwing up such a fractured mandate, we decided to look at present-day funds in India and whether such bloated funds have generated alpha.

Finding fatty funds

First and foremost, we went looking for actively-managed diversified equity funds in India.