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Mutual Funds failed to beat benchmarks in year of lockdown: Morningstar Study
- Only 3.45% of large cap funds beat the benchmark in the lockdown year (25th March 2020 to 22nd March 2021) as per the report
- The failure to beat came despite strong performances by various mutual fund categories in the lockdown year
A study by mutual fund research firm Morningstar released today showed that several key categories of mutual funds on average failed to beat their benchmarks in the year of lockdown. The study looked at performance from 25th March 2020 to 22nd March 2021. 25th March 2020 was the start of India’s nationwide lockdown. In another variant, it looked at returns from 19th Feb 2020 which was the start of the 2020 Covid correction to 22nd March 2021. In the second variant as well, mutual funds across several categories failed to beat their benchmarks.
Only 3.45% of large cap funds beat the benchmark in the lockdown year (25th March 2020 to 22nd March 2021) as per the report. The proportion was higher for mid caps (24%) and small caps (8.70%). In case of multicaps, just 11.76% of funds beat their benchmarks. The numbers are slightly better if the period from 19th February is considered, with 6.90% of large cap funds, 32% of mid cap funds and 18.18% of mutual funds beating their benchmarks.
The failure to beat came despite strong performances by various mutual fund categories in the lockdown year. According to the report, large cap funds on average delivered 77.76%, mid cap funds gave 96.53% and small cap funds delivered 117.59%. However all of these returns fell well short of indices. For instance, large cap funds on average underperformed by 14.11%, mid caps by 10.89% and small caps by 16.39% implying that investors lost out on a large chunk of returns. The S&P BSE 100 delivered 91.87%, the S&P BSE Midcap gave 107.42% and S&P BSE Small Cap gave 133.98% over the same period, the report showed (for Total Returns Indices or TRI)
“While active fund managers have found it difficult to beat the benchmark over a one-year period, their performance over the medium term (three years & five years) has shown better success rates relative to the benchmark. The polarization of markets witnessed in 2018 and 2019 have now diminished and the sharp bounce back witnessed since March 2020 has been broad based,” the report said.
""There are a number of reasons. First remember that some stocks like Reliance Industries led the rally last summer but mutual funds were barred by regulations from having more than 10% of their assets in a single stock. Second, actively managed funds have underperformed in bull markets historically. Third, the market concentration of the earlier years gave away in the latter part of 2020 to a wider set of stocks rallying. Active managers who run a growth style did relatively underperform," said Kaustubh Belapurkar, Director - Manager Research at Morningstar Investment Adviser India.
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First Published:24 Mar 2021, 06:58 PM IST
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