Know This Hard Truth About Active Funds Before Its Too Late

Market Update - Thursday, 22 Jan

Recent developments at the Davos World Economic Forum have significantly influenced market sentiment. President Trump’s statement regarding Greenland, clarifying that force will not be used to acquire the territory and that a deal will be pursued, has helped cool market anxieties. Following this news, precious metals softened while global markets rallied.

With fewer than seven sessions remaining before the annual budget, the domestic market appears to be in a state of flux, which is somewhat unusual for this pre-budget period. Despite this, Thursday, 22nd January, provided a welcome recovery bounce.

A major point of discussion over the last few days has been the unusual behavior of Gold and Silver ETFs. Since Tuesday afternoon, these ETFs surged into a significant premium relative to the underlying metals.

The technical charts show that after a "doji" day, the market managed a bounce, closing 0.53% higher. While the short and mid-term trends remain downward, closing above the recent high of 25,435 could signal a potential run-up leading into the budget.

• Nifty Junior and Mid-caps also saw gains of over 1%, though they remain in downtrends.

• In contrast, Bank Nifty rose 0.68% and continues to show long-term strength, maintaining its position at the top end of its range despite broader market weakness.

• In the commodity space, Gold remains in a positive long-term trend at 15,056 per gram, despite recent chatter about a market top.

• Silver reached a new calculated all-time high of 293,291, up 1.13%.

Other Market Triggers

• In corporate news, Zomato fell 2.68% following the news of Deepinder Goyal stepping down from Eternal.

• While some view this with concern, his track record as an entrepreneur suggests he has likely stabilized the foundation before his departure.

• Other notable performers included Tata Steel, Bajaj Auto, and various public sector stocks, while ITC remains near the 320–325 mark, consistent with previously discussed patterns.

• Specifically, Bajaj Consumer surprised the market with a 20% gain following a Q3 net profit jump of 83%.

U.S. Market Updates

• In the US, markets rallied on the back of the Greenland news, with Intel climbing 11.72% and AMD rising 7.7%.

• Major indices like the S&P 500, Dow Jones, and Nasdaq all gained more than 1%, supported by tech giants like Nvidia and Tesla.

• These global movements continue to provide a backdrop for domestic strategies. For those interested in structured approaches, information regarding model portfolio subscriptions and various investing strategies is available for review.

What to watch next ?

• Locally, the market experienced a substantial run-up in the morning; however, much of those gains were surrendered by the close.

• This indicates that investors remain cautious and are not yet convinced that current global tensions have fully calmed.

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What To Read This Week ?

The Hard Truth About Active Funds: A 30-Year Reality Check

The debate between active and passive investing is as old as the markets themselves. However, recent data—both from the US and India—suggests that the "dream" of consistently beating the market is becoming increasingly elusive for most fund managers.

Whether you are looking at the mature US market or the emerging Indian landscape, the numbers tell a cautionary tale for investors who blindly trust active management.

The US Survival Game (1992–2022)

Based on data shared by Brian Feroldi spanning roughly 30 years, the performance of active funds against the S&P 500 is a sobering statistic. If we look at the 1992–2022 period, where the S&P 500 delivered an average return of 9.46%, the "survival rate" of active funds is remarkably low.

• 59% of Funds Disappeared: More than half of the active funds that existed in 1992 didn't even survive the 30-year journey. They were either merged or closed due to poor performance.

• 31% Survived but Failed: These funds stayed in business but failed to beat the index.

• The Elite 10%: Only one out of ten active funds managed to both survive and outperform the benchmark over three decades.

Finding that 10% isn't just about research; it often feels like a stroke of extreme luck.

The Indian Context: Is it Different at Home?

You might think that in a "developing" market like India, active managers have more room to generate "Alpha" (excess returns). However, the data up to September 2025 paints a different picture. Across various categories, active funds are struggling to justify their higher fees.

Underperformance Rates Against Benchmarks (10-Year Period):

Even in the 3-year window, the trend remains discouraging. Roughly 65% of Large Cap and 80% of Mid/Small Cap funds failed to beat their respective benchmarks.

The Danger of "Blind" Investing

The data makes it clear: Blindly picking an active fund is a statistically losing bet. Most investors end up in an "underperforming vehicle" that charges higher fees for lower returns.

To succeed in active investing, you don't just need a fund manager; you need an exceptional one who can sustain performance over decades—a rarity in the current financial ecosystem.

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