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'Outperforming benchmark will probably get tougher'
Sharing his views on the active vs passive debate, Jain said active funds can continue to generate alpha despite rising difficulties, provided the fund manager can build up a portfolio which is significantly different from the benchmark.
“While outperforming benchmarks is not easy and will probably get tougher, especially net of expenses, some managers should be able to outperform over time. In most cases, this outperformance is however unlikely to be linear or consistent. Significant divergence of portfolios from benchmarks and consequently a higher tracking error (that many equate to risk, though there are strong arguments to the contrary) will be needed in many cases to overcome the hurdle of costs and to generate alpha over long periods in my judgement”.
'ESG investing needs reasoned debate not sharp emotions'
Though the objective of ESG (Environmental Social and Governance) is noble, the answer to solving these issues in not in mechanical scores.
“Reasonably priced energy and adequate defence preparedness are basic to a nation’s / society’s well-being. Lack of investments in these areas can lead to difficult outcomes as the world is realizing and experiencing. This can be particularly difficult for a low income country like India where energy consumption is likely to grow rapidly. There is in my opinion a need to have a realistic assessment of technological limitations, real costs, realistic timelines and the risks. The markets now seem to have had a change of heart with sharp outperformance of tobacco, defence, energy stocks including thermal power and coal mining. It will be interesting to observe the continued acceptability of exclusion based investing in the face of potential underperformance. This turn of events once again highlights how rationality eventually prevails”.
