Active mutual funds again fail to outperform benchmark indices in 2020; large-cap funds fare worst

Active fund managers faced a hard time mirroring the up-move charted by indices in 2020, with 81% of large-cap equity indices failing to outperform the S&P BSE 100 index, data sourced by S&P Dow Jones Indices showed. The underperformance is not just limited to large-cap funds, but a high percentage of ELSS funds, mid-cap, small-cap and even government bond funds have lagged benchmarks over the one year period ending December 2020. Equity markets soared during the period after having nose-dived earlier in the year owing to the coronavirus pandemic.

“Over the one-year period ending in December 2020, the S&P BSE 100 was up 16.84%, with 80.65% of funds underperforming the benchmark. Over the second half of 2020, 100% of the funds underperformed the S&P BSE 100,” S&P wrote in its latest SPIVA India Scorecard report. The comparative index for ELSS funds, the S&P BSE 200 was up 17.92% in 2020. It outperformed 65.12% of the actively managed funds in the category. Similarly, the benchmark for mid-cap and small-cap funds, the S&P BSE 400 MidSmallCap Index, was up 26.76% over the one-year period ending in December 2020. 67% of the mid-cap and small-cap funds failed to mirror such a move. 

The story was similar in the fixed income category. Half of the Government Bond funds were underperformed the S&P BSE India Government Bond Index while over 90% of Composite Bond funds lagged the performance of the S&P India Bond index.

“In 2020 India joined markets across the world facing extraordinary volatility due to COVID-19,” said Akash Jain, Associate Director, Global Research & Design, S&P Dow Jones Indices. He added that the second half of 2020 was a particularly challenging period for Indian equity active funds where 100% of the large-cap funds, 80% of the ELSS funds and 53% of the mid-cap and small-cap funds underperformed their respective benchmarks.

Data showed that actively managed equity funds have underperformed peers even over longer periods of time. More than 87% of large-cap funds underperformed BSE 100 over 3-year and 5-year time frame, while 68% lagged the index in the 10-year time frame. While most others have lingered, 35% of mid-cap and small-cap equity funds fared better than their benchmark over 3-year and 10-year time period. However, 54% of these mid-cap and small-cap funds have underperformed over the 5-year period.

The underperformance over various years has led to some actively managed funds shutting shop. Over the last year, nearly 4% of large-cap, mid-cap and small-cap funds failed to survive.  Among ELSS funds, the number is up at 5%.