Union AMC’s research report called ‘Are Active Funds Relevant In Indian Market’ reveals that on a rolling return basis, an average of 52.85% schemes in one year, 57.49% schemes in three years and 62.24% schemes in five years have outperformed their respective TRI benchmarks. Here’s the data:
Data- Union AMC;
The database considered for our evaluation is from 31st May 2011 onwards (until 30th Sept 2021).
The report stresses on the fact that the prevalent “single date” performance analysis indicates that many active funds do not outperform their benchmarks. This type of analysis does not give complete and reliable insight into portfolio performance. The annual point to point return calculation method ignores the performance of schemes throughout the year and is easily biased by abnormal events. Rolling return analysis eliminates these biases and provides a more reliable insight in appraising fund performance.
According to the rolling return analysis, except for the large cap category, majority of the schemes have outperformed their benchmarks in the 1, 3 and 5 year periods. The extent of category outperformance is higher over longer time periods.
Large cap mutual fund category has been under fire for the last two years. Passive funds in the category have beaten their active peers comfortably. Even the rolling return data shows that only 43.63% active large cap funds were able to beat their benchmark in the last one year. However, the extent of outperformance is not that big.
The report shows that most small cap funds and able to beat the TRI benchmarks followed by mid cap schemes. This shows that there is huge room for alpha creation in these two categories.