There are two kinds of ratings that are in the news today – the ratings of a mutual fund , namely Mom and Pop’s very own, UTI-64, and ESPN cricket ratings, which is desperately trying to get Mom and Pop status. It just so happens that financial markets and cricket are two major interests of mine, but that is not the only reason for examining them jointly. It is rather recognition of the fact that mutual fund ratings move vast amounts of money; and cricket ratings move hearts, and minds, and sponsorships. And just like mutual fund performances, and ratings, are regulated by SEBI, so it might be time for cricket ratings to be regulated!

Far-fetched perhaps, but consider the following. In my last article, (June 16, 2001) I had argued that the NAV based UTI funds were collectively the best performing equity funds in India. Between May 2000 and May 2001, the Sensex lost 18 percent, while the average equity mutual fund lost 23 percent, the average FII fund lost 26 percent - and the average UTI fund lost only 18 percent. An impressive performance, by any yardstick. UTI-64 was not part of this calculation, since its NAV was not listed and it is more in the nature of a balanced fund than an equity fund.

All other things being equal (which they obviously are not!), UTI-64 should have yielded a net return of -5 percent over the last year (June 2000-June 2001). This calculation assumes a 20 percent fall on about 50 percent of the assets (equities); a 15 percent increase in fixed income for about 30 percent of the assets (given the interest rate fall over the last 12 months it would be a miracle for a fixed income fund not to yield at least 15 percent!), and a zero percent return on 20 percent of the assets (real estate etc.). If any equity investor, anywhere in the world, has only suffered a loss of 5 percent over the last year, let us double it and make it 10 percent, then that investor is a very, very happy person.

So UTI-64 management had an obvious solution staring them in the face - declare no dividends - sorry guys, and welcome to the real world - and restated UTI-64 in terms of net asset value (they have to do that by next June anyway). Even with these radical "declines", the UTI-64 investor is still better placed than most equity investors. Why this option was not chosen is not clear; one clue could be that the UTI-64 yielded returns far lower than -10 percent suggested above. If UTI-64 returns are considerably below the expected value of minus 10 percent, then there has to be a flaw in the above calculation. The only real error is likely to be in the "assumed" equity return of -20 percent. This number may be much larger, perhaps 35 to 40 percent. But how likely is it that the same fund managers, managing twenty other funds, achieve a yield of -20 percent, but in one fund achieve a loss double that amount? Not very likely. Unless, and now I am speculating, unless mutual funds follow the "flagship" principle (and now I am getting closer to the phenomena of ESPN ratings on cricket). This principle states that mutual funds will try and have a "star" fund, a fund that "shows" good returns, helps build up the brand name, and helps in attracting funds to all the schemes in the fund! But this can be achieved in one of two ways - by genuinely being better than the rest of the market, or by allocating profitable trades to the star fund and loss making trades to the poorer cousins. Our research shows that this is a distinct possibility with several mutual fund families. And in the UTI case, it may have been too perfect a set up - UTI-64 is not NAV based, there are no checks and balances on its performance, and since it is the public sector, why, the Ministry of Finance will bail out the fund, and the "bad trades". So the parked bad trades were not so bad after all! The reasoning was perfect, except perhaps for one fatal flaw - maybe the Ministry of Finance will not bail them out this time. Further bad news for the inefficient UTI - they may have to face the private sector music soon. After all, the BJP is not Congress, and only the latter does not believe in privatization.

Not unlike UTI-64, Saurav Ganguly has been having a bad run - as do all of us, no matter what our expertise. But what mere mortals do not expect - indeed find it embarrassing - is that at times of a particularly bad run, one gets hailed as the greatest. Which is what ESPN did in their ostensibly "objective" cricket ratings system for one day internationals (ODIs). Now that Ganguly has performed well in the last two innings, ESPN ratings have brought him down two notches to number three!

Not unlike mutual funds, ratings are a "black box" and there can be, and are, genuine differences between thinking that Ricky Ponting or Tendulkar is number one (jointly ranked number one by www.cricketx.com, an alternate cricket ratings system). There can be debate as to whether Kallis should be number 3 or Saeed Anwar or Jayasuriya. But ranking Ganguly number one, when no other ranking system has him even in the top 20, suggests that something else besides cricket is going on.

If a sufficiently long enough time-horizon is chosen, then every mutual fund, and ratings system, and dogs, will have their day. ESPN ratings evaluate batsmen on form, and in ESPN's case, the chosen period is the "last five innings". When the ratings were touting him as number one, Ganguly's last five innings scores were: 74,9, 0, 4 and 6. The ESPN rating also claims that it takes into account winning matches, and here they may be right. Ganguly's failure with the bat may well be the secret weapon in India's good run. (P.S. SEBI to investigate "insider ratings", please).

There was mention of "flagship" funds above and speculation about parking of losses, and profits. Could a parallel phenomenon be happening in cricket, especially now that match-fixers are struggling for survival? Could it be that endorsements and sponsorships carry a tag - a tag based on performance, and since performance quality is debatable, perhaps ranking of a major sports channel is used as an arbiter? It's a thought - and if I am even half-right, maybe it is time to call in the ghost-busters (SEBI) to set things right.

The author invites comments on the website www.oxusresearch.com where an archive of articles is also available. And by the way, authentic and reliable cricket ratings are available on www.cricketx.com . Ganguly is not even in the top 20 as far as form ratings are concerned.