To be or not to be.
1. The dumb money flows based on pointless things like AUM size, star ratings, some silly buy lists, etc.
2. The indecisive money that needs validation usually relies on the same garbage as the dumb money
3. The smart money doesn't care but that's a small pot
1. The dumb money flows based on pointless things like AUM size, star ratings, some silly buy lists, etc.
2. The indecisive money that needs validation usually relies on the same garbage as the dumb money
3. The smart money doesn't care but that's a small pot
and if you cater to just the smart money, you'll never make money on tiny AUMs.
It's not just India, it's the same everywhere. I'm not sure if Indian AMCs can do this but in the US, AMCs proudly flaunt the funds that are rated 4-5 stars by Morningstar even when
It's not just India, it's the same everywhere. I'm not sure if Indian AMCs can do this but in the US, AMCs proudly flaunt the funds that are rated 4-5 stars by Morningstar even when
they deep down know that those ratings are just sheer garbage. What's more, ironically star ratings matter. There a lot of studies that show that funds with higher star ratings see large inflows while those with lower star ratings see outflows. wsj.com/articles/the-m…
Allocators, investors, etc have AUM limits below which they don't allocate. This means smaller AMCs, boutique shops will probably have slog a million times harder than asset gatherers. It's even worse in the US. In India, pretty much all brokerages and MF platforms allow
trading in ETFs and buying and selling of MFs. But in the US, the platforms control shelf space. Even today, if you are a boutique manager with a unique strategy but a small AUM, you cannot get your fund listed on wirehouse platforms like Morgan Stanley, UBS etc.
There were also other arrangements called "pay to play" arrangement to some extent went away when Charles Schwab unleashed the mother of all pricing wars and forced TD, E*Trade, Fidelity, and others to go to 0. I wrote about it here:
nakedbeta.com/musings-rants/…
nakedbeta.com/musings-rants/…
I highly recommend following @philbak1 who rails against these things because he himself heads a small asset management shop. His firm offers a unique reverse weighted S&P500 fund. This tweet is about another unique ETF $FRDM.
The ETF tracks a freedom weighted index designed by @Perth_Tolle. The index weighs countries based on human rights, economic freedoms and other societal factors as opposed to market-cap. Meaning this is only EM ETF that underweights China. But her ETF won't get the same play
as a Blackrock or a state street ETF. Coming back to India, let's take the case of Edelweiss funds itself. Their Dynamic Asset Allocation fund (I refused to call any fund from that category balanced, but that's another argument altogether) has performed extremely well compared to
the peer group during this sell-off. Which when these funds are supposed to shine. But I just checked the recommendation lists for BAF funds, I could hardly find any list that recommended this fund. ICICI BAF is the most widely recommended fund but look at the performance 
Similarly, plenty of other funds from the tail end of the AMCs have the same issue. If a PMS manager is running a really unique strategy that does what it says on the tin, but the 3rd question a client asks is the AUM size, life's hard. Such funds and strategies will never get
the limelight they deserve, the bullshit ratings and the fluff coverage pieces and all the other inane and absurdly pointless things that shouldn't matter but matter. I dunk on all the fund houses a lot but being an AMC isn't an easy business.
So even if an AMC/boutique PMS offers the best but has to play in the same crappy bullpen. For ex, I know a few small advisors and PMS managers who run some really differentiated, non-index hugging strategies but they'll never get the limelight that even some chump recommending
2 mutual funds will get. Most importantly, just like the stock markets where liquidity begets liquidity, AUM begets AUM. It's a bit of a chicken & egg problem. If you don't have the AUM, you don't get the limelight, and if you don't have the limelight then you don't get the AUM.
This is why the top 5-10 AMCs are 80-90% of the market in India and the US. AUM begets more AUM. In India, if you look at the top funds from the top AMCs, a vast majority of them are closet index funds. They charge ~1.5% to deliver the performance of a 10bps index fund.
But if you look at the flows, they remain unabated. If you a middle of the pack AMC/PMS offers a good fund, nobody cares. Coming back to the original point, expecting AMCs not be asset gathers is a silly thing to say. I'm not saying asset gathering cannot go overboard and active
funds become beta loaded fund offering, that's a separate argument. But AMCs have to play by the rules the big guys who have all the muscle, the pull, and the visibility set. It's a tough business. Much respect for the smaller AMCs.
