Active funds face structural limits on consistent alpha generation

Nearly three-fourths of large-cap active funds underperformed a blended benchmark over 10 years, according to the SPIVA 2025 report cited by The Hindu. The article argues that skill differences among fund managers have narrowed due to similar credentials and publicly available information, making luck a larger factor in generating alpha, the excess return over a benchmark.

The Hindu adds that markets are "efficiently inefficient": mispricing exists but does not last because too much capital chases the same stocks. Livemint, citing Value Research data on small-cap funds, reports that a low benchmark overlap, meaning active stock selection bets, does not automatically produce better returns. Among funds with the lowest overlap, returns ranged from -0.8% to 27.9%, while those with the highest overlap returned 10.6% to 23.3%.

Both sources agree that active management faces structural challenges. Livemint concludes that benchmark overlap indicates portfolio differentiation but does not fully explain performance. The Hindu warns that a period of underperformance, even from bad luck, can derail a life goal if it coincides with an investor's time horizon.