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Fund managers improve large-cap performance and stumble on small-caps

By Abhishek Kumar
October 18, 2023 17:37 IST
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Fund managers of large-cap and equity-linked saving schemes (ELSS) have demonstrated a marked improvement in their performance over the past year, according to the latest SPIVA (S&P Indices Versus Active) report released by S&P Dow Jones Indices.


Illustration: Dominic Xavier/

In the one-year period ending June 2023, 17 per cent of active large-cap schemes outperformed the S&P BSE 100, compared to just 9 per cent at the end of June 2022.

In the case of ELSS, there was a sharp improvement in performance, with 66 per cent of active schemes delivering better returns than the benchmark S&P BSE 200.


Fund managers attribute this outperformance to a broad-based recovery in the market and a sharp surge in small-caps and midcaps.

Active large-cap fund managers are allowed to invest up to 20 per cent of the corpus in smallcap and midcap stocks, and hence their relative performance has an impact on the overall performance of active funds.

“One of the reasons is the comparatively better performance of small-caps and midcaps this year.

"The fact that this has been a broad-based rally means that diversified active funds have benefited,” said Bharat Lahoti, fund manager of Edelweiss Large Cap Fund.

In the first half of calendar year 2023, the S&P BSE MidCap Index went up by 13.7 per cent, and the S&P BSE SmallCap index rose by 12.7 per cent.

By comparison, the S&P BSE Sensex increased by 6.4 per cent.

A Business Standard analysis of returns delivered by active large-cap funds compared to passive funds for the six-month period ending June 2023 showed that 78 per cent of active large-cap schemes were ahead of the National Stock Exchange Nifty50 Index funds, as opposed to just 26 per cent in 2022.

The same factors are expected to have worked in favour of ELSS funds as well.

However, the performance of smallcap and midcap funds dipped in the same period.

The SPIVA report pegs the ratio of underperforming smallcap and midcap schemes at 78 per cent at the end of June 2023 (based on a one-year return).

In contrast, only 27 per cent of these schemes were lagging behind the benchmark in June 2022.

The reasons range from underperformance of their large-cap allocations to a sharp rally in some sections of the market where active fund managers have limited exposure.

Public sector undertakings (PSUs) have been major drivers of smallcap and midcap indices so far this financial year (2023-24).

However, most fund managers generally maintain underweight positions on PSUs for various reasons, from weaker management to slower growth.

Active schemes are likely to regain the edge going forward.

In longer periods, the majority of active smallcap and midcap funds have outperformed the benchmark, according to the report.

Going by the five-year absolute returns, only 38 per cent of the schemes were underperforming.

In the case of active large-cap funds, the situation is the opposite.

Almost 93 per cent of the schemes have underperformed the benchmark in the five-year period ending June 2023.

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Abhishek Kumar
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