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Why are mutual funds failing to beat market

There are parts in a market cycle, when concentration of performance happens, and it becomes difficult for fund managers following a particular investment style to beat the market benchmarks, says, ED & CIO,. Excerpts from an interview with ETNOW.I have had the luck of working for 31 years, and watch the markets for long so. If you look at the previous market cycles, there has always been a concentration of the market at different points of time. If you go back to the cycle of 1999, there was a concentration into Infosys Wipro , Himachal Futuristic, etc. If you look at the 2007 cycle, there was a concentration into infrastructure-related plays like power utilities, telecom, capital goods, construction etc. Today, you have a similar kind of concentration. In 2007, I used to run two funds — Value Discovery and Tax Plan — which actually underperformed their benchmarks meaningfully. And I used to be asked the same question: what is happening? How come they are underperforming?What happens is that there are parts of a cycle, when such concentration happens and when you get this kind of a market. You move to a situation where you have a framework that does not work, because you used to have Infosys and Wipro trading at more than 100 P/E at one point of time. At that point of time, you obviously did not feel like buying Infosys and Wipro at those valuations.If you go back to 2007, there was a situation where you had L&T and BHEL trading at absurd valuations, and they were great companies, not to mention of others in that era. You are going to have such cycles and you will have what I call ‘valuation divergences’. When you have these valuation divergences, you will have to take the pain if you have a specific investment style.At ICICI Prudential AMC, every scheme is not run the same way. We were very cognisant that if you try to run every scheme in the same way, this problem will be acute. So we have a different styles and Sebi categorisation also ensured that diversity of styles. This is a passing phase, but one doesn’t know how long this phase will last. If you go back to the US, the passing phase that started in 1997 lasted till 1999, and again a similar phase has been going on for quite some time now. And if you have such a narrow market rally continuing forever, I do not think the benchmarks can be beaten. Read from source….