scorecardresearch70-80% active large-cap MF schemes underperform benchmarks in 2022: Report

70-80% active large-cap MF schemes underperform benchmarks in 2022: Report

Updated: 03 Jan 2023, 11:52 AM IST
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This comes on the back of multiple reasons - from the underperformance of their minority allocations in mid- and small-caps to limited-to-nil exposure in Adani Group stocks which were among the top performers in large-cap benchmarks last year, said the report
This comes on the back of multiple reasons - from the underperformance of their minority allocations in mid- and small-caps to limited-to-nil exposure in Adani Group stocks which were among the top performers in large-cap benchmarks last year, added the report

This comes on the back of multiple reasons - from the underperformance of their minority allocations in mid- and small-caps to limited-to-nil exposure in Adani Group stocks which were among the top performers in large-cap benchmarks last year, added the report

Most active large-cap mutual fund (MF) schemes underperformed their benchmarks in 2022, a report by Business Standard stated.

This comes on the back of multiple reasons - from the underperformance of their minority allocations in mid- and small-caps to limited-to-nil exposure in Adani Group stocks which were among the top performers in large-cap benchmarks last year, added the report

An analysis of Value Research data shows that 83 percent of active large-cap funds underperformed the S&P BSE 100 Total Returns Index (TRI) and 69 percent failed to beat the Nifty 100 TRI, informed BS. In comparison, the two large-cap indices went up 6 percent and 5 percent, respectively, in 2022. This implies that 83 percent of active large-cap funds delivered less than 6 percent last year.

“In 2022, most returns came from select stocks — and Adani Group shares were among them. The high dispersion in returns is bound to negatively impact diversified active funds. Also, active large-cap funds can invest up to 20 percent in mid-and small-cap stocks. This allocation creates a drag on returns when mid-and small-cap stocks underperform large-caps. Lastly, the higher expense ratio of active funds also weighs on returns,” Vishal Dhawan, founder and chief executive officer, Plan Ahead Wealth Advisors told the market daily.

He further added that the underperformance could also be due to a change in stock market trends in 2022. Growth as a strategy was doing much better than value for several years but that trend reversed in 2022 and many fund managers continued with the growth strategy, leading to their underperformance, Dhawan said.

Comparatively, 2021 was much better for active large-cap fund managers, as per the report. Over 62 percent of schemes had outperformed the S&P BSE 100. In 2020, 55 percent succeeded at it, while in 2019, only 32 percent of schemes had outperformed, noted the BS report.

In the past few years, experts have also highlighted that room to generate alpha (outperformance over benchmark) in the large-cap space is diminishing, with rising efficiency in the market.

According to market observers, the large-cap space is where the interest of large institutional players, including foreign portfolio investors, is concentrated. As a result, there is little information asymmetry or the possibility of making outsized gains.

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First Published: 03 Jan 2023, 11:52 AM IST