Indexing outperforms Active Funds (again)

Passive Investing is your solution in the long run

The SPIVA scorecard is a report that is generated bi-annually by S&P Indices Versus Active Funds. The report compares the performances of actively managed mutual funds against its respective benchmarks, for a period of 1, 3, 5 and 10 years. The report states that the Indian economy has been going through tough times since the beginning of the year, with a depreciating rupee and increasing oil prices. Along with this, the economy also witnessed the introduction of long-term capital gains and mutual funds getting recategorized according to asset allocation and investment strategies.

Indexing is a serious option for the retail investor

While the performance of Large Cap funds was strictly average, finishing at 0.34%, Mid and Small Cap funds were disappointing, finishing at minus 12.74% for the first half of 2018, ending in June.

While S&P BSE 100 managed to give a return of 12.94% (the highest return among the funds), 88% of the funds underperformed over the one year period, with a low style consistency of 42%. For the three year period, 78% of the Large Cap funds underperformed.

Over the 10 year period, 63% underperformed, with a low survivorship rating of 68%.

The ELSS fund managed to give a return of 12.43% for the one year period, with 84% of the funds not meeting the benchmark that was set. The style consistency return for the same time period was a high 95.35%. The three year period also resulted in a majority of the funds underperforming, with 62% of the funds not meeting the benchmark. But the fund exceeded the benchmark set for the five and 10 year period, with only 27.78% and 43.33% underperforming for that time period.

The S&P BSE 400 Mid Small Cap Index gave a return of 6.08% for the one year period, with a style consistency return for that period being 73.33%, and 62% of the funds failing to meet the benchmark that was set. The actively managed small and mid cap funds in India underperformed across the periods that were studied.

Across the other three time periods studied (3 years, 5 years and 10 years), the majority of the funds still failed to meet the benchmark that was set, with 78.26%, 53.03% and 50.67% failing to do so.

The above calculations accounted for survivorship bias and style bias in comparing performance to the index.