Large-cap funds lag passive peers in returns
Passive funds that track benchmarks indices are not popular in India. Investors here prefer schemes managed by fund managers, also known as active funds, mainly because of the perceived ability of these to beat returns of the underlying benchmarks and generate the so-called alpha.
A large proportion of passive funds has, however beaten actively managed large-cap funds in the last one year. The average One-year category returns for large-cap funds stood at 10.2 percent, considerably lower than 15.8 percent and 13.7 percent given large-cap exchange-traded funds and index funds respectively.
“It has been a selective rally this year, and fund managers have largely failed to get their stock selection right.
In particular, managers were under allocated in IT stocks. This has resulted in underperformance of their schemes as these stocks move up quite sharply in the past few months,” said kaustubh belapurkar, director, fund research, Morningstar India.
Active funds have remained out performance over longer time frames. Average category returns for large-caps stood at 10.48 percent for a three-year period, compared to 10.44 percent and 10.2 percent for large-cap ETFs and index funds respectively. Again,active funds turned out to be clear winners over a five-year period, with a different of over 200 basis points over passive funds.
Assets of equity schemes from about 5.5 percent of the overall market cap in India. In comparison, foreign portfolio investors and insurance companies own more respectively, according to experts.
“In the US, only 10-15 percent of the active funds manage to beat the benchmark indices because they form about one-third, too as the proportion of mutual fund equity assets has increased beyond 10 percent, a greater number of active funds will star under performing,” says Belapurkar.
Source: Business Standard, Google.
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