Large schemes struggle to generate alpha; returns lag over 1-3 yr period

The country’s largest actively-managed equity funds have struggled to generate alpha in the last one year and three-year period. Market participants said most of the large schemes had a ‘growth’ tilt at a time when the ‘value’ theme outperformed the market over the past one year.

Data from Value Research shows that Kotak Flexicap Fund, which is the largest pure equity scheme with an asset of Rs 34,744 crore, has given returns of 55.83 per cent and 10.52 per cent in the last one year and three years, respectively. Several large schemes such as Aditya Birla Sun Life Frontline Equity Fund, Mirae Asset Large cap Fund, ICICI Prudential Bluechip Fund and HDFC Top 100 have given returns in the range of 54-56 per cent in the last one year.

In comparison, the benchmark Nifty 200 Total Return Index (TRI) has given returns of 64.22 per cent in the last one year and annualised return of 11.17 per cent in the last three-year period.

“In the last one-year sectors such as metals, IT, realty and power have been top performers. Many of the schemes continued to have high exposure towards financials. This has led to underperformance in the last one year,” said a fund manager on condition of anonymity.

In the last one year, the Metal Index and IT Index is up by 154 per cent and 111 per cent. Metal stocks have rallied on the back of rising steel prices, improved earnings and better production. While returns of the Nifty 50 TRI is 62.87 per cent in the last one year.

However, over the five year and ten-year period most of the funds have managed to beat the key indices by good margin.

The underperformance of large schemes often stokes debate on whether high scheme corpus impedes returns.

Vidya Bala, co-founder of Primeinvestor says that underperformance due to the high AUM is more of a problem for schemes in the midcap and small caps universe. While for large cap or multicap the returns are generated primarily by strategy of the funds rather than size of the fund.

“We can’t say funds having high AUM have not done well. Underperformance can be due to the strategies adopted by the fund house which did not work. For example, growth as a strategy has not done well and value has started picking up in the last few months.”