Elusive alpha?
The article discusses why a significant majority of large-cap active funds underperform their benchmarks over a 10-year period, as highlighted by the SPIVA (S&P Indices Versus Active) report. It attributes the difficulty in consistently generating 'alpha' (excess returns) to two main reasons: the narrowing difference in skill levels among portfolio managers due to similar knowledge and publicly available information, and the 'efficiently inefficient' nature of markets where mispricing is quickly corrected by numerous participants.
The article discusses why a significant majority of large-cap active funds underperform their benchmarks over a 10-year period, as highlighted by the SPIVA (S&P Indices Versus Active) report. It attributes the difficulty in consistently generating 'alpha' (excess returns) to two main reasons: the narrowing difference in skill levels among portfolio managers due to similar knowledge and publicly available information, and the 'efficiently inefficient' nature of markets where mispricing is quickly corrected by numerous participants.
Exam linkage
GS Paper 3: Indian Economy - Financial Markets and Investment.
Syllabus mapping
This topic appears in Mains
Questions on Indian Economy come up regularly in GS papers. Practice writing an answer — and see exactly what earns marks.
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