Beating benchmark post introduction of total return index (TRI), a benchmark that captures dividend income has become difficult.
The latest S&P Indices Versus Active (SPIVA) India Scorecard reveals that over the one-year period ending June 30, 2018, 88% of large-cap equity funds, 62% of mid-/small-cap equity funds, and 83% of government bond funds underperformed their respective indices. Asia Index, a joint-venture between BSE and S&P Dow Jones Indices, runs the SPIVA scorecard.
Akash Jain, Associate Director, Global Research & Design, Asia Index said, “The large-cap equity funds witnessed a low survivorship rate (68%) and a low style consistency (13%) over the 10-year period ending in June 2018.”
Over the 10-year period, the return spread for actively managed large-cap equity funds between the first and the third quartile break points of the fund performance, stood at 3.6%, pointing to a relatively large spread in fund returns. In line with the historically volatility nature of the mid-/small-cap segment of the Indian equity market, the return spread for actively managed mid-/small-cap equity funds was even higher at 5.1% over the same period. Simply put, the spread in fund returns shows the difference in fund performance.
The asset-weighted return for large-cap equity funds was 51 bps higher than the equal-weighted return over the 10-year period. In contrast, the margin between asset- and equal- weighted returns for ELSS funds was only 40 bps. (Asset weighted returns factors in the AUM size of the schemes whereas equal-weighted returns is the arithmetic mean of the returns of the schemes).
Over the three-year period ending in June 2018, the asset-weighted return of large-cap funds was 1.3% lower than their benchmark, the S&P BSE 100. During the same period, the asset-weighted return of Indian Equity Mid-/Small-Cap funds was 3.1% lower than their benchmark, the S&P BSE 400 MidSmallCap Index.
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Exhibit 1: Percentage of Funds Outperformed by the Indices |
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FUND CATEGORY |
COMPARISON INDEX |
1-YEAR (%) |
3-YEAR (%) |
5-YEAR (%) |
10-YEAR (%) |
|
Indian Equity Large-Cap |
S&P BSE 100 |
87.88 |
78.35 |
48.08 |
62.77 |
|
Indian ELSS |
S&P BSE 200 |
83.72 |
61.54 |
27.78 |
43.33 |
|
Indian Equity Mid-/Small-Cap |
S&P BSE 400 MidSmallCap Index |
62.22 |
78.26 |
53.03 |
50.67 |
|
Indian Government Bond |
S&P BSE India Government Bond Index |
82.93 |
75.47 |
82.35 |
94.92 |
|
Indian Composite Bond |
S&P BSE India Bond Index |
30.00 |
60.42 |
68.70 |
95.45 |
Source: S&P Dow Jones Indices LLC, Morningstar, and Association of Mutual Funds in India. Data as of June 30, 2018.
