Investors start to shun small and midcaps, but then fall for another poor idea

livemint.com:

money flowing into small cap and midcap funds has declined significantly (down 20%). And on the other hand, the fund flows into thematic/sectoral funds have increased dramatically (up over 80%). I am sure you can guess the themes and sectors that are pulling in all the money! Here’s what the Economist has to say on such sectoral/thematic funds: In 2022 Itzhak Ben-David, Francesco Franzoni, Byungwook Kim and Rabih Moussawi, four academics, published research suggesting that thematic equityETFs, which attempt to track a narrow industry or trend, underperform broaderETFs by about a third over the five years after their launch. That is because of a straightforward problem: when thematicETFs get going, the buzz around the investment is already extensive and the underlying assets are already pricey. In effect, while the retail investor may have got one thing right – incrementallyreduce exposure to small and midcaps, she has pivoted to investing in another poor investment idea i.e.

sectoral/thematic funds. The third takeaway from this chart is encouraging. Flexicap and Large cap funds have seen a large turnaround in money flow fortunes.

Flexicaps have now seen positive net flows for some time. Large caps on the other hand have seen a sharp turnaround in their “money flow" fortunes from the troughs. This is good news.

If you selected your fund management team well, Flexicap is the way to go. Give them the money, and then let them decide where to invest. Don’t straight jacket them into investing in one way or another.

And large caps, it is common knowledge, perhaps offer the best value proposition in many years. By opting for large caps, you are in effect shifting from a pricey market to a relatively much cheaper market. It’s a