Indian active managers fail to impress

The majority of actively managed Indian mutual funds are underperforming their benchmark index, according to data published by S&P in association with CRISIL, and Indian analytics company.

The funds analysis is over the past five years ending June 2011, and measured against the latest Standard & Poor’s Index Versus Active Funds (SPIVA) scorecard, produced by S&P Indices in partnership with CRISIL.

The scorecard reveals that 65% of large cap equity funds failed to beat the S&P/CNX Nifty, the leading benchmark index for large cap companies listed on the National Stock Exchange of India. This underperformance has continued into the latest 12-month period, with 60.6% of large cap equity funds producing lower returns. 

The majority of diversified equity funds (55.7%) was beaten by the S&P/CNX 500 over the past five years. Taking the latest one-year period in isolation, 53.6% of diversified equity funds underperformed.

Active managers of Equity Linked Saving Schemes (ELSS) and gilt funds have also fallen behind benchmarks over the past five years, says the research. In contrast, the majority of active managers of MIP (hybrid) and debt funds (which invest mainly in corporate debt) have outperformed their benchmarks. For balanced funds, half have outperformed their benchmark while half have underperformed.

Simon Karaban, director of S&P Indices Asia Pacific Research, said: “This picture of underperformance by active managers of equity funds in India is one which we have seen replicated in other well-established markets, including the US. Active managers of Indian fixed income funds have performed better than their US counterparts, however; with the exception of emerging market debt, more than 50% of US active managers failed to beat benchmarks in all fixed income categories.”

Tarun Bhatia, director of capital markets at CRISIL Research, said: “The latest SPIVA scorecard for India highlights the challenges faced by active fund managers picking well-performing stocks in volatile market conditions. The majority of funds with a high equity component underperformed their benchmark, while most funds with a lower equity component, including MIP and debt funds, outperformed theirs. In recent years, the higher volatility associated with equities compared to bonds has not been rewarded with higher returns for the majority of these funds.”

The SPIVA scorecard for India also revealed that asset-weighted returns were higher than equal-weighted returns for all fund categories apart from gilts over the past five years. Asset-weighted large cap equity funds have returned 14.64% over the past five years compared to 13.45% for their equal-weighted equivalents. This indicates that funds with larger assets under management performed better than smaller funds.

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