Understanding Market Underperformance of Global Funds

The recent performance of global funds has seen significant underperformance compared to market indices such as the Nasdaq 100 or Nifty 50. This phenomenon is largely due to a combination of short-term market fluctuations, ongoing pandemic-induced economic uncertainties, and policies from government and central banks.

There are several contributing factors to this trend. Firstly, the global market has been heavily influenced by new government measures and economic systems post the Corona pandemic. While multiple stimulus packages have improved liquidity, the immediate effect has waned, leaving markets vulnerable to new economic conditions. Additionally, continuous hikes in crude oil prices constitute a significant pressure on economic stability and market performance.

The emergence of the second wave of Corona virus continues to cast a shadow over investor confidence. Despite the rollout of vaccines and aggressive vaccination programs, the virus remains a formidable challenge. It is important to recognize that the impact of the pandemic on the global market is not yet fully understood and real changes in the number of cases may take time to materialize.

Given these challenges, many global funds are currently looking negative. This includes factors such as elevated PE ratios and the gradual approach to a potential market correction. However, such corrections often present golden opportunities for investors with a long-term perspective.

Comparing Performance with Benchmarks

Each global fund has a specific benchmark index, which is a measure against which the fund's performance is compared. Benchmarks can vary widely, from regional indices like the Nasdaq 100 or Nifty 50 to broader indices such as the MSCI World Index. It is crucial to compare fund performance with its correct benchmark to understand its true performance and potential for outperformance.

Despite the current underperformance, there are notable instances where global funds have managed to outperform their benchmarks over extended periods. Some examples include:

PGIM India Global Equity Opportunities Fund Kotak Emerging Market Opportunities Fund Other global funds that have demonstrated resilience and successful investment strategies

These funds have managed to navigate through market turbulence and deliver compelling returns. This highlights the importance of selecting the right benchmark and aligning fund performance with it.

Global Macro Funds and Their Performance

While the recent years have not been favorable for global macro funds, their overall performance is still significant. Global macro funds had a remarkable year in 2018, but their performance was overshadowed by the previous decade due to central bank policies.

For a long time, global macro funds were adept at identifying and exploiting mispriced positions. However, central bank interventions continually intervened, keeping markets mispriced. This led to underperformance, as betting on economic fundamentals proved ineffective.

Now, things are starting to change. Markets are becoming more rational, and the impact of central bank policies is waning. This creates new opportunities for global macro funds. In essence, the current environment is favorable for global macro strategies that can identify and capitalize on these market adjustments.

Moreover, the abundance of mispriced positions in the market presents a fertile ground for global macro funds to thrive. This period of correction offers potential for these funds to outperform once again.

Investment Strategies for Long-Term Growth

To capitalize on these opportunities, investors should adopt a long-term investment strategy. Recognizing the cyclical nature of the market, understanding the importance of benchmarking, and staying informed about global macroeconomic trends are critical.

Investment in global funds can be a rewarding long-term commitment, especially when the market corrections present opportunities for significant gains. Diversification across multiple sectors and geographies is also advisable to mitigate risks and enhance portfolio performance.

By keeping a close watch on economic indicators, market trends, and the performance of various benchmarks, global investors can make informed decisions and position themselves for success in the evolving financial landscape.

In conclusion, the current market underperformance of many global funds is a result of short-term market fluctuations and economic uncertainties. However, with a strategic approach and a long-term perspective, investors can navigate these challenges and potentially benefit from the forthcoming opportunities that are now available.