Mastershares: enigmatic performance

Abstract

In this paper we have examined the performance of Mastershares, the first all equity close ended growth fund established by the Unit Trust of India (UTI) in the country, using the various portfolio performance measures that have been suggested in the literature. We found that while in terms of return on the Net Asset Value (NAV) the fund has out-performed the market, in terms of returns based on Market Prices it has shown a mixed performance. On further investigation, we inferred that the excellent performance in terms of NAV could neither be ascribed to selectivity nor to timing of decisions. The explanation possibly lies in UTI's acquisition of stocks in the primary market as well below prevailing market prices and in the manner of allocation of stocks to various funds managed by the Trust. Our analysis also revealed that the market quite irrationally inflates the volatility of the market price of Mastershares as compared to the volatility observed in the NAV. This observation which implies market inefficiency is in line with the recent researches done in the developed capital markets.