Actively managed mutual funds have massively underperformed against indices

[arun_T]

Try to improve your strategy. Covered call give rental income but won’t offer hedge.
There are ways to do cheap and easy hedges. One clue is to use butterfly. Try to find out.

[Jason_Castelino]

@arun_T

One clue is to use butterfly. Try to find out.

I am aware. For now what I do is working for me.

[Ashwin_kumar1]

@Jason_Castelino

more than 30 percent in a year

Are you sure of the math there? Discounting 2020 premiums?

[Jason_Castelino]

@Ashwin_kumar1

Are you sure of the math there? Discounting 2020 premiums?

Yes. For sure. I have records of each and every transaction that I have made with zerodha. I calculate xirr using this.

[abcd5662]

But how scalable is the covered call strategy? I mean at current prices, you need to own 18L worth of niftybees to be able to write 2 lots of calls (with 1.5-2L margin required). i.e. to deploy every lakh of margin money, you need to hold roughly 10L worth of the underlying.
And the other complain I have with cc is, like you mentioned, in case the underlying rallies like 20-30%. I’ll miss out on the entire upside. Aren’t these the once-in-a-decade (or longer) opportunities which help indexes average the long term 12% returns?

[Ashwin_kumar1]

Interesting,. So wouldn’t weeklies provide approximately twice the return, adjusting for standard deviation ( approximately 2.5%, I’m guessing)

[Jason_Castelino]

@abcd5662

But how scalable is the covered call strategy? I mean at current prices, you need to own 18L worth of niftybees to be able to write 2 lots of calls (with 1.5-2L margin required).

My capital is much bigger than this. So it works out.

@abcd5662

in case the underlying rallies like 20-30%.

I will be doing a lot of adjustments with weeks options. The underlying is all pledged and on expiry days I sell deep OTM which has absolutely no chance to come ITM and generate 10 percent per annum returns. So when I consider all of this so far I am able to generate 40percent XIRR over a period of 5 years. Well. I know some day it’s not gonna work. For now I have no complaints.

[Jason_Castelino]

@Ashwin_kumar1

So wouldn’t weeklies provide approximately twice the return,

When I sell 2 months away I feel I get better premium at same strike. The law of averages catches up. It will be ITM and OTM so many times and ultimately usually the returns over 2 months will not exceed 5 percent. If it does I can still sell futures against underlying and make 8 percent return per annum. Will also be selling puts against these futures. When futures come to my original call ka strike I will again push my strike higher. Ah. I do a lot of adjustments.

[abcd5662]

@Jason_Castelino

My capital is much bigger than this. So it works out.

You didn’t get the point. I’m sure you’re working on a larger capital but still, you shouldn’t be calculating your xirr on the margin deployed , but the capital invested in the underlying.

Just to be clear, suppose you have 100 crs capital invested, you can sell around 1000 lots of nifty (deploying about 10cr margin, let’s assume it’s coming from pledged holdings). Now, you can’t calculate your xirr on 10cr base but on 100 cr invested in the index. Just by doing this, the returns don’t look that pretty anymore (5% monthly becomes 0.5%). Miss one major index rally and you’ll be underperforming the index for a long long time.

Let me find my excel sheet where I did some scenario analysis. And that’s the catch at the end of the day, right? No option strategy can give risk free return.

[Jason_Castelino]

@abcd5662

but the capital invested in the underlying.

I calculate it at the account level. This is how I calculate.

Know your XIRR : Excel Calculations

Profit is one of the most important objectives of any Investor or trader. Calculating your profit can not only help you determine your level of success, it also provides information on how you can better your returns. Profit being an absolute value, it doesn’t give you the right picture. Profit should always be seen in relative terms to the investment made. In stock market, we frequently add and withdraw funds. Our investment levels won’t remain same all the time. Hence the most appropriate in…

@abcd5662

No option strategy can give risk free return.

Totally agree.

[abcd5662]

@Jason_Castelino

I calculate it at the account level.

I went through this a few weeks back and found it very useful (have bookmarked it as well). So selling covered calls will keep giving you market beating returns, till it doesn’t (the black swan event we discussed). I only replied to your comment to pick your brains on the strategy & check if I was missing something, and am clear now

@Jason_Castelino

Totally agree

And as long as we agree to this ultimate truth, we can keep playing our hands.

[Jason_Castelino]

@abcd5662

I only replied to your comment to pick your brains on the strategy & check if I was missing something, and am clear now

It can give lesser returns in bear market because my underlying will be going down and my calls won’t give me enough premium. But it will still be outperforming index since I get small premiums on weekly expiry day. Thanks to a separate day finnifty expiry. I hope they change bank nifty expiry day also. Lol.

@abcd5662

And as long as we agree to this ultimate truth, we can keep playing our hands.

Anything which gives more than GOI bonds is risky. Bank FDs included. Ultimately there is no free lunch. Higher your returns higher is your risk.

[GB26]

@Jason_Castelino

Higher your returns higher is your risk.

Many people don’t think of this, they think and are the same

[Ashwin_kumar1]

@Jason_Castelino

Ah. I do a lot of adjustments.

If you’re willing to go that far out, rolling in time may save you a lot of trouble instead of adjusting. Only other option is if you’re selling 1sd options, you’ll have to sit out 30% of the time.

[Jason_Castelino]

Adjustments are with weekly options.

Let’s say I have sold 18500call for Jan expiry to cover my niftybees value, and if the position is currently in red, then I can sell weekly puts of 18k.
Both the positions can’t be in red. And then if the market falls I will sell weekly calls to cover that.
May look like a lot of work but with a decent capital even 0.1percent per day is also good enough.

[Ashwin_kumar1]

@Jason_Castelino

May look like a lot of work

Okay, i sorta figured. This works too, if you’re willing to deploy capital as market moves. I sorta do the opposite, i take off positions as market moves. This way, i can take advantage of vol crushes and stay out while expansions.

[kamlesh_taank]

Hello,

I am looking for it and want to understand it, can I direct msg you?

[kamlesh_taank]

Hello, I am newbie here, how can I learn it

[SanJanJayadevan]

I Completely Switched To Passive In MF.

50% In Nifty 50 (Navi)

30% In Nifty Midcap 150 ( Motilal Oswal)

20% In S&P 500 ( Motilal Oswal)

[Meher_Smaran]

SPIVA® India Scorecard - Highlights from the year 2022

Indian Equity Large-Cap Funds

• The S&P BSE 100 gained 6.0% in 2022, and 87.5% of active managers underperformed the benchmark over that period.

• Underperformance rates remained high over three- and five-year periods, at 96.7% and 93.8%, respectively.

• Active managers produced relatively better results over the 10-year period, with the underperformance rate dropping to 67.9%.

Indian ELSS Funds

• The S&P BSE 200 rose by 5.7% in 2022, and 76.9% of Indian ELSS funds underperformed the index. Fund performance improved over the 10-year period, as 63.9% of funds underperformed the benchmark.

• Indian ELSS funds achieved the second-highest long-term survival rate across all categories in our SPIVA India Scorecard, with 77.8% of them still surviving after 10 years.

Indian Equity Mid-/Small-Cap Funds

• The benchmark for Indian Equity Mid-/Small-Cap funds, the S&P BSE 400 MidSmallCap Index, rose 2.2% in 2022, and 54.9% of active managers underperformed the index over that period.

• Among all the categories included in the SPIVA India Scorecard, Indian Equity Mid-/Small- Cap funds fared the best by far in the long run, with exactly 50.0% of them beating the S&P BSE 400 MidSmallCap Index over the 10-year period ending December 2022.

Indian Government Bond Funds

• The S&P BSE India Government Bond Index increased 2.8% in 2022. Less than one-third of active managers beat the benchmark in 2022, with an underperformance rate of 68.0%.

• Fewer funds were able to outperform as time horizons extended, with underperformance rates over 3-, 5- and 10-year periods reaching 70.8%, 71.1% and 83.0%, respectively.

Indian Composite Bond Funds

• For the full-year 2022, the S&P BSE India Bond Index rose 3.0%. The 2022 underperformance of Indian Composite Bond fund managers was the lowest across all categories in the SPIVA India Scorecard, at just 45.4%.

Link to full report:

spiva-india-scorecard-year-end-2022.pdf