SPIVA® India Scorecard – A note

Today the Economic Times published a study a that claimed

study by the S&P Dow Jones Indices says a majority of the large-cap actively managed funds in India underperformed the S&P BSE 100 index in the five years ending 31 December 2014

The whole study can be downloaded from here (Link). LT @NagpalManoj 

There have been a few questions raised on the said study

1. Uses BSE100 & not scheme benchmark
2. Uses Total Returns (Div reinvested)

My take is that BSE 100 too does not reflect entirely the stocks that are bought in supposedly large cap funds. BSE 200 may actually be better in that regard.

But when one compares one fund with another, the concept is that both are easily tradeable. But this is not the case with most Indices since we do not have ETF’s bench marked to it. So, whether its BSE 100, BSE 200 or BSE 500, unless you are able to buy a ETF, comparing with the Index makes no sense since for most investors, there is no way to participate in those indices.

Total Returns is the Right way to compare since when we compare Growth funds, we are assuming that the Dividends are re-invested into the fund.

The study itself has issues since it uses average returns. Since funds that have out-performed are way bigger in size compared to those that have under-performed, this may not be the right way to analyze.

Secondly, 5 years is too short a period for any such analysis given that we have not seen a severe bear market since 2008. A 10 year study starting at 2005 would have made more sense.

A few days back, I calculated returns of funds (Large Cap) over the last 15 years and compared it to the returns of CNX Nifty Total Returns Index

As can be seen, almost all big funds save for SBI Magnum Equity Fund & HDFC Large Cap fund have strongly out-performed Nifty. But is this the complete list of funds that were available for investment in the year 2000? The answer is a big No, there is quite a big of survivor bias out there and the following table from the report linked above is proof of it

The most astounding number was in the Indian Equity Mid-Small Cap space with look back of 5 years. Over the last 5 years, 30% of funds have disappeared. For a Industry that is still taking off, this is a big number and unless we quantify what happened to investments in those funds (which after presumably under-performing for long with small AUM would have been merged with a bigger fund), its really tough to say how good the performance is seeing only those who have survived till date.

Until the time that we have ETF’s for all our Indices, it makes better case to go along with funds which have a successful track record since there is no way of replicating them for a common investor using ETF’s alone.