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An unusual trade by an Indian exchange-traded fund has helped it edge past the benchmark it’s designed to mirror, a rarity in an era dominated by passive investing.
Aditya Birla Sun Life Nifty 50 ETF has gained almost 12% since the financial year began April 1, putting it a basis point ahead of the NSE Nifty 50 Total Return Index. It’s the only fund in its peer group outpacing the gauge, despite management fees that typically drag trackers below their benchmarks.
The outperformance comes after the fund tendered shares of a large IT company into a buyback at a 16% premium, said Deepak Yadav, head of passive business at Aditya Birla Sun Life AMC Ltd. He declined to name the company. The move helped offset fees and marked a shift toward selectively exploiting such opportunities, even at the cost of some tracking error.
India’s passive market is starting to embrace “enhanced-index” or “passive-plus” strategies long used globally, as smaller managers seek ways to differentiate. PPFAS Mutual Fund recently announced a fund aiming to generate incremental alpha over the NSE Nifty 100 Index.
Aditya Birla’s ETF tracking the Nifty IT Total Return Index has also benefited from same buyback tender as deployed in its Nifty 50 ETF, beating the benchmark by more than 21 basis points since March 31 thanks to larger exposure to the company.
Such events — including rights issues and tender offers — can provide low-risk arbitrage, but passive funds often avoid them to minimize tracking error. Yadav argues long-term investors should instead focus on tracking difference, which captures net performance gaps over time.
The firm says it will continue to use selectively these opportunities without letting tracking error exceed internal limits.
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