Abstract
We conduct an analysis of Exchange-traded Funds (ETFs), Index and Equity mutual funds and their respective benchmark during the 2010-2015 period for the Portuguese fund industry. For the period 2010-2017, we test ETFs for price inefficiency (existence of deviations between prices and the Net Asset Value) and persistence. We find that the studied ETF does not always outperform index funds in replicating the variations of the PSI 20 index, despite exhibiting better tracking ability when facing downside deviations of the benchmark and a better capacity of smoothing tracking deviations. Regarding ETFs price efficiency and its persistence, the study reveals that the examined ETF is priced at a low average discount with evidence of deviations persistence of at least two days. The investment schemes with the highest ability to track the PSI 20 Index were PSI20 (ETF), BBVA PPA Índice PSI20, and the equity mutual fund BPI Portugal.
Highlights
Since its initial appearance in 1993, Exchange-Traded Funds (ETFs) have exhibited a steady asset growth as a result of their popularity worldwide and have become a relevant investment alternative for investors
Following the procedures taken by the literature, different measures will be applied to the Exchange-traded Funds (ETFs), index mutual funds and equity mutual funds in the sample to conduct a complete test of relative performance
The results were mainly the same, having Comstage PSI20 ETF and BBVA PPA Índice PSI20 values of 1.3306 and 1.3264, respectively, which are very similar to the benchmark standard deviation (1.3217)
Summary
Since its initial appearance in 1993, Exchange-Traded Funds (ETFs) have exhibited a steady asset growth as a result of their popularity worldwide and have become a relevant investment alternative for investors. The Portuguese Investors’ access to this type of funds traded in the local exchange (Euronext Lisbon) with the Portuguese Stock Index (PSI 20) as the underlying index (i.e. Benchmark) has only happened late in 2010, but, since the acceptance in the Portuguese market has been verified.. This paper evaluates ETFs as a comparative relevant investment option for Portuguese investors by conducting a descriptive statistics, regression and index tracking comparative examination of returns with other types of investment products normally considered substitutes [index mutual funds and mutual equity funds (sharing the same benchmark)]. The lowest results of tracking error measures (i.e. the investment schemes with the highest ability to track the PSI 20 Index) were from PSI20 (ETF), BBVA PPA Índice PSI20 (Index Fund) and from the equity mutual fund BPI Portugal
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