AS THE BENCHMARK indices surge to all-time highs, investors seeking large-cap allocation in their portfolios may want to stick solely to index funds. While index investing is an attractive option for large-cap exposure, investors must consider a blend of active and passive funds now for optimal returns.
In fact, a recent report by S&P Indices Versus Active Funds (SPIVA) India Scorecard shows that half of actively managed large-cap funds have underperformed the benchmark S&P BSE 100 last year. The underperformance rates were significantly high over the three and five-year periods. However, experts say by carefully selecting a blend of funds, investors will achieve better returns, even with a 30-40% overlap in the portfolio.
Blended approach The right mix of largely active funds and smaller amounts in passive funds can help create a diversified portfolio. During a broad-based market rally, large-cap active funds tend to perform well. When the markets are volatile, passive funds always perform well.
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