Opt for direct or passive funds in large-cap space

As outperformance by fund managers diminishes, investors should move towards lower-cost products

A recent report by Ambit Capital says outperformance by active fund managers vis-a-vis their benchmarks is diminishing in the large-cap space. Retail investors need to make suitable adjustments to their portfolios in light of this development.

The Ambit report found that compared to the pre-2010 period (January 1991-December 2009), during January 2010-February 2017 period, there was a significant reduction in the alpha generated by large-cap active funds. The alpha fell from approximately three-four percentage points to 0-1.5 percentage point (on average) for 5-10 year holding horizons. Another key finding is that consistency of outperformance by active funds has also turned