Performance evaluation of actively managed mutual funds

Boikanyo Kenneth Malefo,Kathleen Hodnett,Heng-Hsing Hsieh

doi:10.21511/imfi.13(4-1).2016.04

Boikanyo Kenneth Malefo, Kathleen Hodnett + Show 1 more

Open Access

https://doi.org/10.21511/imfi.13(4-1).2016.04

Copy DOI

Abstract

Motivated by the growing attraction of the mutual fund industry worldwide, this research seeks to explore the economic benefits contributed by the South African equity unit trust managers over the period from 6 January 2002 to 2 September 2012. The performance statistics of selected equity unit trusts are examined for the overall examination period and two sub-periods: 6 January 2002 to 6 May 2007 and 7 May 2007 to 2 September 2012. The first sub-period captures the bullish performance of the unit trusts before the 2008 global financial crisis. The second sub-period captures the global financial crisis and the European debt crisis before the European Central Bank (ECB) subsequently implemented the outright monetary transactions (OMT) to curb the yields in Eurozone. The risk-adjusted performance measures employed by this study include the Sharpe ratio, M-squared, Treynor measure and Jensen’s alpha. Regardless of the different applications of risk-return parameters employed to evaluate fund performance, the results reveal that, on average, most of the equity unit trust managers in South Africa do not outperform the market proxy on a consistent basis. The majority of the unit trust managers show good performance before the crisis, with subsequent inferiority in performance in turbulent times. Keywords: unit trusts, active portfolio management, passive portfolio management, performance evaluation, efficient market hypothesis (EMH). JEL Classification: G11, G12, G14, G15

Highlights

The rationale of systematically pooling capital together into one investment vehicle, collected from a group of individual investors who share common investment objectives is known as mutual fund or unit trust investing
In an attempt to evaluate the economic contribution of South African fund managers through their acclaimed skills, Oldfield and Page (1997) investigate whether South African equity unit trust managers are able to earn abnormal returns consistently through their asset selection and market timing activities
The results indicate that South African unit trusts do not deliver significant superior performance compared to the market proxy over various examination periods

Summary

Literature review

Gilbertson and Vermaak (1982) are one of the early contributors to the empirical literature underlying the performance of South African unit trust managers. In an attempt to evaluate the economic contribution of South African fund managers through their acclaimed skills, Oldfield and Page (1997) investigate whether South African equity unit trust managers are able to earn abnormal returns consistently through their asset selection and market timing activities. It can be concluded that South African unit trust managers do not add any significant value through their ability to select superior assets or their ability to time the market movements. The results indicate that South African unit trusts do not deliver significant superior performance compared to the market proxy over various examination periods. It is found that the impact of survivorship bias is directly proportional to the length of the time period under examination This result implies that poor historical fund performance tends to persist in the South African unit trust industry. The study does not find significant outperformance by the South African unit trusts for any of the examination periods

Data and methodology

Empirical findings

Findings

Conclusion