In this modern-day and time that we live in, an average investor who wants to invest in a Portfolio Management Services (PMS) Strategy is exposed to several pieces of information every single day. This information is displayed in the form of different websites and newsletters offering performance reports, factsheets, quarterly /annual news, etc. on the PMS Strategies in the market.

It’s not hard to understand why the human population’s attention span is getting shorter and that the majority of people believe themselves to be busier than they have ever been. So how does a person keep track of all this information?

A tool like Screen and Compare on the iQ platform acts as a filter for the information that is available on different PMS Strategies in the market. This tool eliminates the need to wade through numerous amounts of irrelevant and unnecessary data. Essentially, the Screen and Compare Tool generates relevant information on high-quality PMS Strategies for the User.

Whilst comparing Strategies, there are various parameters one can consider, but more the parameters, more the junk. The Screen and Compare tool in iQ sifts through the junk and shortlists only the most relevant, key parameters that investors typically consider when comparing different Strategies This data must be used to understand which Strategy best matches your risk appetite.

While evaluating a Strategy, the most important thing to look out for is the consistency in delivering the objective of the Strategy, in past performances and not choosing a Strategy purely based on recent performances. Quite a few investors have fallen prey to this and made short-sighted investment decisions.

It is important to note here that the best PMS Strategies for your portfolio does not just mean the best in terms of returns or performance in the near term, but rather the one that’s most befitting your risk profile and investment objectives.

Let’s now look at what the key criteria one must consider while comparing and analysing PMS Strategies. We’ll also take you through a use case of how one of our advisor partners used the Screen and Compare tool to select the best Strategy to match his client’s investment objectives and risk profile.

The Basics

Analysing a Strategy requires one to start with understanding its core objective, the philosophy and if there have been any deviations from this in the past.

This is how our partner took the help of the ‘Objective’ section to match the investment need of the investor.

The investor had a solid conviction that Indian found companies and startups will flourish in the next two to three decades and he wanted to invest in growing Indian companies. Going by this belief he was most likely to choose the second Strategy as his beliefs match with that of the fund.

Going by this belief he was most likely to choose the second Strategy as there was an alignment in his beliefs and the Strategy’s Objective.

Moving on, the Investment Style, Market Capitalisation and the Portfolio Constituents says a lot about the Strategy’s philosophy and the scope for the future.

The Man, The Myth, The Legend

The Portfolio Manager is the Captain of the ship and his/her review must be done meticulously. Although a Strategy has a pre-defined process that is followed for stock selection the Portfolio Manager has the final word in this decision and that can make a huge difference. The Portfolio Manager Details section gives a brief overview of their history, experience, and how long they have been managing this Strategy. This is to gauge the Manager’s expertise and solidity.

The Portfolio Manager Section that is shown here highlights how diametrically opposite Fund Manager 3 is when compared to Fund Manager 1 and Fund Manager 2 as he has been with the Strategy for a very short time. However, his Professional Experience is much greater than the other two.

The Portfolio manager’s profile page for each Strategy can be accessed here

Performance Over Time

The Performance of the Strategy over time in the form of returns is a key factor that needs to be taken into consideration and the investor needs to be extremely observant of the long-term performance of the Strategy and its ranking amongst peers. The Trailing Returns section gives an overview of the Strategy’s performance over periods of 1 month, 3 months, up until 5 years and also since inception.

Measuring the Risk of a Strategy

Measuring PMS Strategy’s risk, in effect means measuring the risk and rewards ratio for effective PMS Strategy comparison. Some of these ratios include PE, Standard Deviation, Sortino, etc. Along with ratios, you must also check the Alpha of the Strategy. Alpha gives a measure of risk-adjusted performance of the Strategy. Simply put, this gives you an idea of the excess returns that the Strategy will generate when compared to its benchmark. For example, if a strategy has an alpha of +7.0, it means the Strategy has outperformed the benchmark by 7%. This also gives a positive mandate for the Portfolio Manager.

Strategy Expenses

This parameter is crucial while comparing PMS Strategies We all know, the Strategy bears different forms of fees like Management fees, Exit Load, Profit Sharing Fees, etc. This basically means that high expenses will affect the Strategy’s returns. Although SEBI has regulated the expenses that can be levied on PMS Strategies, still lower the number the better unless you’re getting a hefty return for a high fee which is not usually the case.

As we can see here in these three Strategies, clearly the Expenses of Strategy 2 are fixed and lower than the other two. It’s always better to choose a Strategy that has fixed fees rather than a variable fee structure.

Great things always take time. What you invest in today, has no guarantee for a profitable future tomorrow. As investors, all we can do is stay alert and keep learning effectively for analyzing Strategies that yield profitable returns.

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