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Equity mutual funds: a half year of turmoil

The first half of fiscal year 2023 has come to an end, and will be remembered as a time where Pakistan lurched from crisis to crisis.

The cacophony of political noise in an economy teetering on the edge created an atmosphere of extreme FUD (fear, uncertainty and doubt). Inflation ran rampant (CPI averaged 25.0%) and decimated the purchasing power of all but the most privileged elite.

Foreign exchange reserves dropped 24.2% to just USD 11.7 billion as the PKR lost 10.5% against the USD. A hostile external environment where geo political strife led to a massive rally in commodity prices added to the misery of the general populace.

Understandably, the equity market could not remain indifferent to the increasingly shrill narrative that bombarded us 24/7 (thanks to social media) and the KSE-100 Index remained under pressure. Depending on whose estimates you believe, the market now trades at a price to earnings multiple (P/E) of less than 4.0x which is below the trough hit during the global financial crisis of 2008-09.

In such an environment, investors cannot be blamed for making less than optimal decisions which is why they often outsource their decision making to professional fund managers in the hope that they will be able to navigate the treacherous path of investing with considerable more expertise. To that end it would be useful to see how asset managers fared during the last 6 months especially with regards to the performance of their equity mutual funds.

Sample set

For the purposes of this discussion we will limit our analysis to conventional equity mutual funds with a minimum size of PKR 1 billion (as of 30 Nov 2022). This leaves us with 13 funds out of a total of 26. However these 13 funds account for 94.8% of the total investment under this category so they are an excellent representative sample. For context, the KSE 100 index lost 2.7% during the first half of fiscal year 2023 (July 1 2022 to Dec 30 2022) but remained highly volatile as can be seen from the graph below.

To assess the performance of these equity mutual funds, we will consider not only their return but also the risk taken to generate that return. For that we will use different metrics including standard deviation of daily returns, tracking error and the information ratio to arrive at a more nuanced view of performance during 1HFY23. Before we look at the data we will briefly explain what each of these terms mean.

Standard deviation of returns (SD)

Standard deviation of returns is a measure of volatility or risk. The larger the SD, the larger the variations you can expect to see in returns. SD tells you how spread out the data is as it is a measure of how far each observed value is from the mean or average in the sample. An equity mutual fund with a higher SD or volatility in its returns would be considered more risky.

Tracking error (TE)

Tracking error can be defined as the difference between a fund’s returns and the index it tries to beat (in this case the KSE-100 index). TE shows a fund’s consistency versus an index over a given period of time and is measured by the volatility in the difference between the daily returns of the fund and index. A fund with a higher tracking error is indicative of higher risk in the portfolio vs the index.

Information ratio (IR)

The information ratio seeks to evaluate the performance of a fund by comparing its returns with the index, giving consideration to the volatility of the returns. IR is calculated as the active return (fund return – index return) divided by the tracking error. The IR tells us how much a fund’s return exceeded the return of the index and at what level of consistency. In other words, it indicates how much risk was incurred to generate the stated return. A higher IR will quantitatively tell us that the fund’s return was achieved with more consistency and less risk.

Fund performance


Equity Mutual Fund Return Standard Deviation Tracking Error Information Ratio


ABL Stock Fund -6 37% 17.12% 5.06% -0.73

AKD Opportunity Fund -5.00% 17.40% 10.35% -0.22

Alfalah GHP Stock Fund -3.15% 13.92% 2.44% -0.18

Atlas Stock Market Fund -5.30% 14.24% 2.71% -0.96

Golden Arrow Stock Fund -5.62% 17.2996 9.64% -0.30

HBL Growth Fund (Class A) -7.31% 23.32% 16.35% -0.28

HBL Investment Fund (Class A) -8.29% 23.7996 16.85% -0.33

JS Growth Fund -5.18% 11.92% 3.38% -0.73

Lakson Equity Fund +1.85% 13.14% 2.70% +1.69

MCB Pakistan Stock Market Fund -7.74% 14.52% 4.26% -1.18

NBP Stock Fund -5.61% 14.94% 3.71% -0.78

National Investment Unit Trust -7 56% 10.79% 5.90% -0.82

UBL Stock Advantage Fund -4 33% 13.98% 3.69% -0.44


Average -5.35% 15.87% 6.70% -0.41


KSE100 -2.70% 13.31%


Source: Mutual Funds Association of Pakistan, Pakistan Stock Exchange

All data is for 1HFY23 (July 01 2022-Dec 30 2022)


Therefore we are looking for equity mutual funds that outperformed the KSE 100 index, had lower volatility in their returns and did not take excessive or undue risk to generate that performance.

Unfortunately, the data set shows that it was a tough half year for equity fund managers as all but one of the funds underperformed the KSE-100 index during this period. Furthermore, the volatility in their returns was on average higher than that of the index. This is a suboptimal outcome for investors as they earned less than the index while being exposed to more risk.

The table throws up some interesting data; firstly there is a wide variance of 10.14% between the top performing fund (+1.85%) and the worst performing fund (-8.29%). Secondly, funds operated with different levels of risk as is evident from the difference between the most volatile (23.79%) and least volatile (10.62%) fund.

Fund managers adopted contrasting strategies in terms of sector allocation and stock selection as indicated by the wide range in the tracking error (2.44% to 16.85%). In conclusion; navigating the equity market during this period was extremely tricky even for professional fund managers.

Ideally, investors should invest in funds that are able to generate consistent returns with lower levels of volatility. However, they should keep in mind all facets of performance/risk when assessing which mutual fund to invest in and be aware that current/past performance is no guarantee or indication of future performance. For more information on these funds we encourage our readers to research their long-term performance and investment strategy which can be found in the monthly Fund Manager Reports available on the company’s respective websites.

Mustafa O. Pasha, "Equity mutual funds: a half year of turmoil," Business recorder,. 2024-01-06.
Keywords: Economics , Foreign exchange , Mutual funds , Stock market , National investment , Social media , Stock exchange , Pakistan , IR , KSE , MCB , NBP , HBL , JS , ABL , GHP , PKR

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