Most large cap funds beat benchmarks in 1 yr despite equities' polarisation

The latest S&P Indices Versus Active India Scorecard (SPIVA) reveals that over the one-year period ending June 2020, 48.4 per cent of Indian equity large cap funds, 59.5 per cent of ELSS funds and 82.3 per cent of Indian Composite Bond funds underperformed their respective indices. This means that despite polarisation of Indian equities, a majority of large cap funds managed to beat their benchmarks in the last one year.

Over longer time periods, the majority of the actively managed large-cap equity funds in India underperformed the large cap benchmark, with 67.7 per cent such funds underperforming over the 10-year period ending in June 2020. During this period, the large-cap funds witnessed a low survivorship rate of 65.4 per cent.

More than 80 per cent large cap funds underperformed over 3-  and 5-year periods.

Akash Jain, associate director, Global Research & Design, S&P Dow Jones Indices said, “Pandemic related volatility shook the Indian equity markets in H1 2020. However, the impact on various fund categories has been different. During this period more than 40 per cent of funds in each of the equity categories underperformed their respective category benchmark whereas 37.5 per cent of the Indian Government Bond Funds and 92.2 per cent of the Indian Composite Bond funds underperformed their respective benchmarks.”

In H1 2020, in the equity categories, the equal-weighted fund returns were higher than their respective asset-weighted fund returns and index returns, suggesting that smaller sized funds were able to better navigate this volatile period than their larger peers.
 

Over the one-year period ending in June 2020, the return spread between the first and third quartile breakpoints was as high as 4.7 per cent in the equity large cap funds, 6.3 per cent for ELSS funds, and 10.4 per cent for mid/small cap funds. This emphasises the wide distribution in fund performance and highlights the fund selection risk for market participants.