Why investors should not ignore actively-managed funds just yet

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Mid- and small-cap funds: the bright spot The performance of mid- and small-cap funds stand out in the SPIVA India Scorecard, especially over the short and medium term. In the first half of 2023, the benchmark S&P BSE 400 MidSmallCap Index rose by a commendable 12.4%. However, what makes actively managed funds shine in this category is the fact that only 45.3% of fund managers underperformed the index during this period.

Zooming out to a five-year horizon, the picture becomes even more compelling. The SPIVA report reveals that just 38.1% of mid- and small-cap funds underperformed the S&P BSE 400 MidSmallCap Index. This suggests that active management in this segment has been more successful in delivering returns that either match or surpass the benchmark over a more extended period.

Investors seeking exposure to mid- and small-cap stocks may look at actively-managed funds, given their ability to navigate the intricacies of these markets, identify hidden gems, and respond to dynamic shifts in the investment landscape. Large-cap funds: a mixed bag The scenario is somewhat different when it comes to large-cap funds. In the first half of 2023, the benchmark S&P BSE 100 gained 7.1%.

However, a significant majority, 58.1% of active managers, failed to outperform the benchmark during this period. The underperformance trend remains notable over three- and five-year periods, with underperformance rates standing at 86.2% and 92.9%, respectively. These figures paint a challenging picture for actively managed large-cap funds, indicating that a significant portion of them struggled to beat the benchmark consistently over these time frames.