82% of large-cap equity schemes underperform S&P BSE 100 over 5 years: Report

The year 2021 emerged positive for Indian equities with active funds in the equity-linked savings schemes (ELSS) along with mid and small-cap stocks outperforming. However, the large-cap category was broadly underperforming in the year.

S&P Dow Jones Indices backed SPIVA report showed that 50% of the Indian equity-large cap funds underperformed the S&P BSE 100. Meanwhile, over the second half of 2021, 54.55% of the large-cap funds underperformed the mentioned benchmark.

Over longer horizons, 70% of large-cap funds underperformed the benchmark BSE 100 over 3 years period ending December 2021, while 82.26% of these funds underperformed the benchmark over the five years period. Notably, 67.61% of the actively managed large-cap equity funds in India underperformed the BSE 100 benchmark over the 10-year period ending in December 2021.

SPIVA report said that over the same period, Indian large-cap funds witnessed a low survivorship rate of 69.01%. The asset-weighted fund return was 16 basis points higher than the equal-weighted fund return over the 10-year period, and the return spread between the first and third quartile breakpoints of fund performance was 2.79% for the same period.

"The rally in Indian equities continued into the second half of 2021, with more than one-half of the active funds in the large-cap category lagging the S&P BSE 100 benchmark. Active funds in the ELSS and mid-/small-cap categories fared better, with 39.02% and 37.25% of the active funds underperforming their respective benchmarks," the SPIVA report added.

Further, the report highlighted saying that "Mid-/small-cap was the best-performing fund category among the equity categories covered in this scorecard; the S&P BSE 400 MidSmallCap Index’s performance was 51.77% over the one-year period ending in December 2021. Though investors in this category may have witnessed a broad spread in fund returns (the difference in the first and third quartiles was 19.57%), exposing fund selection risk challenges."

For the Indian ELSS funds, the SPIVA report mentioned that over the one-year period ending in December 2021, the S&P BSE 200 ended in the green, returning 29.11%, with 26.83% of funds underperforming the benchmark. During the second half of 2021, 39.02% of the funds underperformed the benchmark.

Meanwhile, over the 3, 5, and 10 years period ending in December 2021, 63.41%, 79.07%, and 58.33% of ELSS funds underperformed the BSE 200 benchmark, respectively. It said, "over the 10-year horizon, the return spread between asset-weighted and equal-weighted returns was -78 bps. The return spread between the first and third quartile breakpoints of fund performance was 2.71%."

In regards to Indian Equity Mid-/Small-Cap Funds, the report pointed out that the S&P BSE 400 MidSmallCap Index was up 51.77% over the one-year period ending in December 2021. Over the second half of 2021, 37.25% of the funds underperformed the benchmark.

Among all the categories evaluated in the SPIVA India Scorecard, the Indian Equity Mid-/Small-Cap category fared the best for active funds, with 56.06% of the active funds underperforming the S&P BSE 400 MidSmallCap Index over the 10-year period ending in December 2021. However, over the same period, the survivorship rate was low, at 75.76%. SPIVA in its note said, "for the same period, the asset-weighted fund return was 132 bps lower than the equal-weighted fund return, and the return spread between the first and third quartile breakpoints of fund performance was 4.01%, which was the highest among the equity categories."

Highlighting Indian government bonds, the SPIVA report outlined that the S&P BSE India Government Bond Index returned 3.54% over the one-year period ending in December 2021. Over the 6-month and 1-, 3-, 5-, and 10-year periods ending in December 2021, 80.77%, 79.17%, 53.85%, 76.19%, and 88.00% of the actively managed funds in this category lagged the benchmark, respectively. Over the 10-year period ending in December 2021, the survivorship rate was only 40.00%. For the same period, the asset-weighted fund return was 121 bps higher than the equal-weighted fund return, and the return spread between the first and third quartile breakpoints of fund performance was 1.68%.

As for the Indian composite bond funds, the SPIVA report said that in the 12-month period ending in December 2021, the S&P BSE India Bond Index closed in the black, with a gain of 3.96%. Across the 3-, 5- and 10-year periods ending in December 2021, nearly 90% or more of the funds underperformed the benchmark. Over the 10-year period, the survivorship rate was 74.74%. For the same period, the asset-weighted fund return was 137 bps higher than the equal-weighted fund return, and the return spread between the first and third quartile breakpoints of fund performance was 1.49%.