Actively managed large-cap mutual funds are no longer able to give market-beating returns; here's why

economictimes.indiatimes.com:

large-cap equity diversified funds in India. For a long time, this was the go-to category of funds to serve as the core holding of any mutual fund portfolio. Many of the funds had long track records and the companies they invested in were also well understood.

Those days are now gone, probably forever. Actively managed largecap funds are no longer able to keep up with the Sensex and the Nifty even in a minimally sustained manner. In a recent study by the Value Research team, we looked at 25 actively managed largecap funds with a long history and compared these to the five-year rolling returns of the Sensex TRI index.

More than two-thirds, or 17, of the funds beat the index 25% or fewer times. For another four, this number was less than 50%. These are disastrous numbers.

Of course, there are several reasons for this shift. For starters, the increased efficiency and transparency of the market have made it progressively more challenging for fund managers to find undiscovered value and generate alpha. The proliferation of information, with every small and big investor having access to real-time data, has narrowed the information gap that traditionally benefited the pros.

Large-cap companies hold no secrets and there are no undiscovered, hidden gems. To an extent, the large and consistent flow of EPFO money into large caps has made this a self-fulfilling prophecy. Curiously, on social media, there is no dearth of people saying that large-cap investing is dead.

This is not true. The problem is much narrower: it’s no longer possible for active managers to generate the management fee, plus a significant advantage over the Sensex and the Nifty. So why the widespread misconception? A part of the reason may lie in the amplifying