Apr 09 2024, 09:09
48% active large-cap funds beat benchmark in 2023 vs 12% a year ago:
As per a SPIVA report, 75.4% of the mid-and small-cap funds have lagged the S&P BSE 400 MidSmallCap Index. However, the performance of actively managed large-cap funds has improved. According to the report, being overweight on real estate, utilities, and consumer discretionary have helped a slew of large-cap funds to outperform the broader market.
In 2023, 48% fund managers in the large-cap space have managed to outperform their benchmark index on yearly basis. In 2022, the same number was little over 12%. However, on a three- and five-year period, 87.5% and 85.7% (respectively) of them have underperformed.
But the real big surprise comes from mid- and the small-cap space. This is a segment where everyone assumed active funds would always do well. But this year so far, 73.6% of mid- and small-cap funds have actually underperformed. Even on a 10-year basis, the data is not so encouraging.
ICICI Prudential Bluechip (Direct), the biggest fund in the large-cap space, has an AUM (asset under management) of INR55,000 crore. For 2023, the fund returned 28% as compared to 26% for the BSE 100 Index. The fund has managed to outperform the index almost two years in a row despite its size. The primary reason for the outperformance is the value-based investment philosophy that fund managers have followed over the years.
ICICI Prudential Bluechip (Direct) had a huge exposure to ICICI Bank (9.43%), Reliance Industries (8.12%) and L&T (6%) last year. In the past one year, Reliance Industries has returned 37%, and L&T 75%, which helped the fund to give extraordinary returns.
In general, large-cap funds with value philosophy are having their time in the sun. This has been one of the best years for large-cap funds in terms of outperformance and will continue to do so as long as the value-turned- momentum remains in their favour.
Betting on booming sectors:
According to fund managers, the stable interest-rate scenario and commodity prices in 2023 led big corporates to do better than the overall market. This shows how important it is to choose which industries to invest in. It gives active managers a chance to make more money by picking the right sectors.
Benedek Voros, director, Index Investment Strategy, S&P Dow Jones Indices, said, "As we reflect on the past year, the market's vigour is unmistakable, with the S&P BSE 100 and S&P BSE 200 indices posting gains of 23.2% and 24.5%, respectively. This performance underlines a pivotal year for Indian markets, sustained by a macroeconomic
environment that has seen interest rates and commodity prices stabilising."
The comparison with 2022 is stark: where in the previous year, the index saw a modest rise of 2.2%, and only 54.9% of actively manged mid- and small-cap funds lagged.
Over the 10-year period ended December 2023, a significant 75.4% of these funds trailed the S&P BSE 400 MidSmallCap Index. This marks a stark reversal from 2022, where exactly 50% of them had outperformed the benchmark in 2023.
In 2023, 51.6% of actively managed Indian equity large-cap funds underperformed the S&P BSE 100, which experienced a notable gain of 23.2%. A significant improvement was observed in the short-term performance of Indian equity large-cap funds in 2023 compared to 2022, where 88% of funds underperformed the benchmark.
The SPIVA report says being overweight on real estate, utilities, and consumer discretionary and staying underweight on technology, materials, and banks have helped a slew of large-cap funds to outperform the broader market. The report shows that real estate did well, while banks were laggards.
However, the long-term underperformance rates remained relatively consistent between the two years, indicating persistent challenges for active managers in generating alpha over extended periods.
In the tax-saving category, ELSS funds stood out with just 30% of them underperforming the S&P BSE 200, which rose by 24.5% in 2023. However, the long-term underperformance trend worsened, with 67.6% of funds lagging the benchmark over a 10-year period.
ELSS funds showcased marked improvement in 2023, with a substantial decrease in underperformance rates compared to 2022, where 76.9% of funds failed to beat the index.
Government bond:
The performance of Indian government bond funds witnessed a slight deterioration in 2023 compared to 2022, with fewer managers able to outperform across all time horizons.
Less than one-fifth of active managers beat the S&P BSE India Government Bond Index in 2023, with an underperformance rate of 81.5%. The S&P BSE India Government Bond Index, the benchmark for the category,
increased 7.9% in 2023.
In the medium term, active Indian government bond funds showed relatively better performance, with underperformance rates of 75% over three years and 64% over five years. However, over a span of 10 years, a significant 90% of active funds failed to outperform the benchmark.
The underperformance rates for Indian composite bond funds surged in 2023 compared to 2022, indicating significant challenges for active managers in this category.
Indian composite bond fund managers recorded the highest underperformance rate across all categories in 2023,at 95.6%.
source: et
Apr 10 2024, 08:50
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