Fund Portfolio Research Articles

CO-MOVEMENT AND CAUSAL RELATIONSHIP BETWEEN STOCK MARKET AND MACROECONOMIC VARIABLES: LATEST EVIDENCE FROM MALAYSIA

Previous studies pertaining to the co-movement and causal relationship between Malaysian stock markets and domestic macroeconomic variables are by now quite well documented. Nonetheless, to the best of authors’ knowledge, there is a void in the literature about foreign macroeconomic variables. Therefore, this paper aims to examine co-movement and causal relationship between FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI) with foreign macroeconomic variables namely world crude oil price, gold price, and five world major stock market indices; Singapore’s Straits Times Index (STI), Chinese Shanghai A-Share Index (SHAI), the US’s Dow Jones Industrial Average (DJIA), Hong Kong’s Hang Seng Index (HSI) and Japanese Nikkei 225 Index (NIK). We also include domestic macroeconomic variables namely private sector domestic credit, gross international reserves and foreign currency assets, and an exchange rate of Malaysian ringgit (MYR) to the US dollar (USD) in this study. Using 9-year monthly data series from 2010 to 2018, the Augmented Dickey-Fuller (ADF) test reveals that data series have unit root in level order, but become integrated when converted into the first difference. The t-statistics of the Trace test suggests that FBMKLCI co-moves with Malaysian gross international reserves and foreign currency assets, world gold price and STI in the long run, respectively. Further, the VECM notes the absence of long-run or short runs causal relationships except Singapore’s STI to FBMKLCI in the short run. The pairwise Granger causality test indicates a one-way causal relationship running from FBMKLCI to gross international reserves and foreign currency assets. The findings benefit stock market investors, diversified portfolio fund managers, market regulators, and policymakers besides enriching the existing literature.

Działania Banku Centralnego Norwegii w czasie kryzysu gospodarczego 2007+

The period of global economic crisis starting from 2008 is a great challenge for public institutions responsible for macroeconomic management. Although Norway is a country that has not been significantly affected by the crisis, the pace and scale of countercyclical actions were a major challenge for Norwegian institutions. The activities of the Norwegian central bank included interest rate policy, liquidity management on the interbank market and supervision of the oil fund. The policy of interest rates had a huge importance in 2008 when the bank made a few decisions under conditions of high uncertainty and unprecedented scale. The initial phase of the crisis was also crucial in terms of liquidity and policy of enhancing stability of Norwegian banks. Due to high fluctuations of prices on stock, bond and real estate markets it was also extremely difficult to manage the oil fund portfolio. Nevertheless, through effective policy the Bank of Norway has contributed to minimizing the crisis’ costs.

Financing Disputes: Third-Party Funding in Litigation and Arbitration

Third-party funding is an arrangement where an entity with no prior interest in the merits of a dispute provides funding to a party involved in the dispute. Traditionally, this funding was specifically to assist the party to the dispute by financing its legal fees and costs and could be obtained in a number of ways, such as through insurance or loans from financial institutions. Third-party funding has seen significant growth and an increase in sophistication in recent years, resulting in a departure from this traditional model concurrent with the rise of commercial litigation funders whose entire business is providing non-recourse investment in disputes. This article explores both the changes in models of third-party funding — which can include some or all of: (1) paying for legal fees and disbursements, (2) indemnifying against the risk of an adverse costs order, (3) stepping in to provide security for costs, (4) providing working capital or portfolio funding for bundles of claims, and (5) the rise of institutional third-party financing in Canada. In particular, this article will explore some of the specific applications of third-party funding to the energy industry, including “David and Goliath” claims, claims involving state asset expropriation, and the use of funding as a tool for risk allocation in asset sales.
 This article will also discuss the development and current state of the legal framework and case law in Canada with respect to third-party funding, along with third-party funding across different contexts and types of disputes. This includes the evolution of the law of maintenance and champerty and a discussion of key legal and ethical issues engaged by third-party funding arrangements including confidentiality, privilege, disclosure, conflicts of interest, and control of the dispute.

How to Direct a Mutual-Fund Portfolio by Walking Through Common Strategies

The way to portfolio management is to have at every that you hold quickly too. The best cash supervisors on the world are powerful in light of the way that they have a request to direct cash and they have a game plan to contribute. What is needed is a sound academic framework for settling on decisions and the ability to keep sentiments from expending that structure." Most people contribute to finishing a target, the most generally perceived being retirement and school. Making a game plan upgrades your conceivable outcomes of advancement, despite for shorter-term funds destinations like a house in advance portion, excursion or auto. Right when contributing for a target, consider these requests. At the point when will I require my speculation, the amount of will I require, what is the best record sort, assessable or cost-advantaged. Answers to these request will help choose the measure of danger you can take, the sum you need to contribute and what kind of record you should consider, after we have manufactured your portfolio of mutual funds, we have to know how to look after it. Here, we discuss how to deal with a mutual-fund portfolio by strolling through four basic techniques.

Alternative Asset Fees, Returns, and Volatility of State Pension Funds: A Case Study of the New Jersey Pension Fund

This case study provides new information about alternative asset fees to many institutional investors by tapping a relatively unknown data source: state pension fund annual reports. Examining the few state pension funds annual reports that track both fixed fees and carried interest fees of private equity funds and hedge funds, we find that average alternative asset fees were 2.48% of the relevant pension fund assets for the fiscal year ended June 30, 2017. In addition, as New Jersey provides the most detailed alternative asset data, this study discusses New Jersey pension fund’s private equity and hedge fund (a) returns, (b) fees, and (c) volatility, compared to verifiable and public benchmarks for the five years ended June 30, 2017. Both private equity and hedge fund portfolios underperformed the benchmarks, and the alternative asset industries’ claim of higher returns and lower risks than traditional assets is not supported in this study. To the degree that other state pension funds follow the same investment policies and controls as the state of New Jersey, this study concludes that state pension funds should reduce their holdings of alternative asset substantially. TOPICS:Wealth management, retirement, pension funds, private equity Key Findings • The New Jersey pension plan’s private equity fund and hedge fund portfolios (i) are reasonable proxies for both asset classes and (ii) are similar to those of other state pension funds. • PE five-year annualized returns (net of fees) were the same as the S&P 500. Hedge fund returns were significantly below the 60–40 index and equivalent to LIBOR+5%. • PE return volatility was similar to the S&P 500. HF volatility was greater than the 60-40 and LIBOR+5%. Average annual PE and HF fees were 3.29% and 3.08% respectively.

Do Health Care Mutual Funds Provide Healthy Risk-Adjusted Returns?

Specialty mutual funds, such as health care funds, offer an investor the opportunity to focus on high total return, income, and further diversification within a specific industry. Although extensive research has been conducted on mutual fund performance as well as other specialty mutual fund performance, little research has focused on the performance of health care mutual funds. This article seeks to decode the characteristics of health care mutual funds and their performance by examining their risk-adjusted rate of return from 2001 to 2018. The authors find that, on average, equally weighted portfolios of health care mutual funds did not perform better relative to Dow Jones Health Care Index. Net four-factor alphas of health care mutual funds were positive but insignificant. In addition, based on the two performance models studied, these categories of funds have not consistently created positive net alphas for their investors over longer time periods, such as measured the 2001–2018 period. TOPICS:Mutual fund performance, wealth management Key Findings • Specialty mutual funds, such as health care, offer an investor the opportunity to focus on high total return, income, and further diversification within a specific industry. • We found that, on average, on the basis of risk-adjusted returns, equally weighted portfolios of health care mutual funds did not perform better relative to Dow Jones Health Care Index, but they did outperform Dow Jones Total Market and CRSP Value weighted index. • In addition our results indicated that, based on the four-factor alpha model used in our study, health care mutual funds did not have significantly positive net alphas for their investors over the period of this study (January 2001–December 2018).

Real estate portfolios – the case for globally diversified core property funds

Purpose The purpose of this paper is to build a case for globally diversified core real estate funds portfolio. Design/methodology/approach It uses Monte Carlo simulation technique to construct synthetic real estate funds portfolios. Findings Benefit of maintaining globally diversified real estate funds portfolio merits admission. An optimal portfolio has an almost even split between Europe, USA and Asia Pacific, ceteris paribus. Likewise, currency effect for Europe domiciled investors is undeniable. Practical implications The overall estimates suggest that a blend of APAC, European and US allocations enhance portfolio risk return profile. Originality/value The study adds additional evidence on the contested issue of real estate diversification.

Capital Market In Perspective Law Of Sharia Economy

Economic activity is currently experiencing a very rapid development, starting from the development of the market in such a way, penetrating in the field of capital markets which become the traffic of the world economy, connecting between capital owners (investors) and entrepreneurs. Capital markets are a promising investment, entrepreneurs also began to take part in the world of Islamic capital markets which are currently dominated by Islamic countries in the world. With the development of these economic activities, the legislation is not only a rule, but is able to make the implementation of the law directed, protect and make all stakeholders in the world of capital markets have knowledge of the market and how to run it properly without any violations or criminal act in the Capital Market. Legal reform and regulation on the capital market must continue to be enforced. The development of the Islamic capital market in Indonesia is still relatively slow, as a result of the lack of level of knowledge and understanding of market participants and investors, the limited availability of information on the sharia capital market, lack of human resources (professionals) who are experts in the field of Islamic finance, institutional patterns and institutions in the framework of supervision is still considered a "disincentive" by the perpetrators, Lack of "incentives" so that actors tend to issue conventional products, Limited sharia products that can be used as mutual fund portfolios (special constraints for Islamic mutual funds). In accordance with the MUI fatwa, the stock transaction is legalized as long as the company does not conduct a prohibited transaction, the issuer conducts business in accordance with sharia criteria and transactions are conducted at fair market prices. The fair market price of Islamic stocks must reflect the value of the actual conditions of the assets that are the basis for issuing securities in accordance with the regular, fair and efficient market mechanism and not engineered. Sharia capital market activities are some important institutions that are directly involved in supervision and trade activities, namely BAPEPAM, National Sariah Board (DSN), stock exchanges, securities companies, issuers, professions and capital market supporting institutions and other related parties. Especially for surveillance activities will be carried out jointly by BAPEPAM and DSN.

Alpha, Beta and the Endowment Model

Alpha, or outperformance of a benchmark, can be generated in many ways within a portfolio. It can be created by picking the top hedge fund managers, or by capturing the illiquidity premium via alternative assets. Venture capital is a major source of alpha for long-term investors. Alpha can also be achieved by active asset allocation using both tactical and strategic beta tilts. For the top endowments, these and other innovative portfolio decisions have created great, long-term alpha versus a global balanced benchmark with 70% stocks/30% bonds. Since asset allocation plays a large role in determining portfolio returns, it is interesting to compare how beta (or index fund) portfolios have compared historically versus sophisticated institutional portfolios. We compare 3 decades of performance: the 10 year period before the Internet Bubble’s peak (FY1988-1998), the 10 years including fiscal year 2000’s spectacular gains (FY1998-2008), and a more recent period (FY2008-2018). The Endowment Model will no doubt continue to help colleges to fulfill their missions, and enable public pensions to meet their retirement obligations. However, for some investors, over-diversification can dilute manager alpha and lead to performance that is similar to beta portfolios. Given its complexity, the Endowment Model is not a one-size-fits-all strategy, and is best suited for larger investment teams with considerable resources. For those institutions constrained by limited resources, using a balance of alternative assets and beta could achieve the best of both worlds. For instance, mid-sized investors might be better served by streamlining their portfolios with a liquid beta core, coupled with satellite alternative assets. And smaller investors could only use index fund portfolios and still achieve alpha. An index fund portfolio may be no substitute for a world-class endowment fund, but it could be an ideal investment solution for some long-term investors.

Differential Treatment in the Bond Market: Sovereign Risk and Mutual Fund Portfolios

How does sovereign risk affect investors' behavior? We answer this question using a novel database that combines sovereign default probabilities for 27 developed and emerging markets with monthly data on the portfolios of individual bond mutual funds. We first show that changes in yields do not fully compensate investors for additional sovereign risk, so that bond funds reduce their exposure to a country's assets when its sovereign default risk increases. However, the magnitude of the response varies widely across countries. Fund managers aggressively reduce their exposure to high-debt countries and high-risk countries. By contrast, they are more lenient toward core developed markets. In this sense, these economies appear to receive preferential treatment. Second, we document what determines the destination of reallocation ows. When fund managers reduce their exposure to a country in response to its sovereign risk, they shift their assets to countries outside the immediate geographic region while at the same time avoiding countries with high debt-to-GDP ratios and markets to which they are already heavily exposed. These results are supportive of models of sovereign default that assign a nontrivial role to the preferences of international creditors.

A Study of Fintech in Investment Management - Guided Mutual Fund Portfolios

A Study of Fintech in Investment Management - Guided Mutual Fund Portfolios

Fitting Private Equity into the Total Portfolio Framework

In this article, the authors propose a risk estimation model that addresses both smoothness and idiosyncratic risk dynamics of narrow private equity portfolio returns. The authors subsequently apply the model to a broad set of private equity return streams with tightly controlled diversification properties. They show that increased model complexity is detrimental to the model’s forecasting power and that idiosyncratic risks increase as one goes between hypothetical investment in a broad (albeit noninvestable) private equity index and a real-life, narrowly diversified portfolio of private equity funds. The authors also find that private equity returns have demonstrated a level of exposure to public equity markets that may be considered surprisingly low and offer a possible qualitative justification for this phenomenon. Finally, the authors incorporate the newly obtained private equity risk model into a general portfolio construction framework and demonstrate how to study the inevitable trade-offs between the costs and benefits of increased portfolio diversification. <b>TOPICS:</b>Portfolio theory, portfolio construction, equity portfolio management <b>Key Findings</b> • By applying a somewhat novel econometric technique to a proprietary dataset, we offer a way to separately estimate systematic and idiosyncratic risks of private equity (PE) programs. Our methodology controls for data overfitting and program concentration. • Observed volatility and equity beta of PE are much lower than that of public equity. We believe this is not an aberration but instead a fundamental consequence of PE being less exposed to the excess volatility of public equity markets. • With the exception of the tumultuous period of the global financial crisis (GFC), risk properties of private equity have been surprisingly persistent; if anything, systematic risks of private equities decreased slightly after the GFC.

Efficiency in Portfolio Management of Equity Funds and Methods of Its Evaluation

The paper discusses the key problems of information transparency of mutual funds which impede their development in the domestic financial market. In Russia, open-end mutual funds have not yet fulfilled their potential for retail investors. Earning the trust of private investors for them is complicated by a lot of unsolved problems. The most severe ones relate to the level of transparency and accessibility of information. We analyze some restrictions imposed on efficiency evaluation of equity funds by their investments in foreign financial instruments, the weakness of the benchmarks, and non-transparent information about the investment strategies. The multifactor asset pricing model tailored to the domestic stock market was used as an additional method of evaluating risks and returns of the equity funds. We rationalize that these models allow for internationally standardized analysis of fund performance and can identify fundamental factors which generate sustainable excess return. Our study revealed significant exposure of excess return of the funds to the broad market index and the small-cap equity premium. Since the 2008 financial crisis, the significance of the factor models for fund returns has tended to decline as a result of an increase of foreign assets share in fund portfolios and outfl ows of foreign investors from the Russian stock market. Using different examples of portfolio composition from the equity funds, we show that, under certain conditions, some methods of portfolio rebalancing combined with information on past performance allow investors to gain an excess return.

The Fund Characteristics, Fees, and Expenses Structure Between Conventional and Islamic Mutual Fund

Shariah principle is notoriously known as the key feature underlying the function of assets management in Islamic financial institutions. The underlined principle highly requires fund managers to consistently manage the fund portfolio in accordance to a legitimate set of rules. As a result, Islamic mutual fund may have distinguishable characteristics, and more importantly, the fund fees and expenses structure. This article studies the fund characteristics, fees, and expenses structure between conventional and Islamic mutual fund. We also describe how the fees, expenses, and return can be explained by fund characteristics accordingly. A dataset comprises 252 open-end mutual funds in Malaysian industry offered within the period 2008 to 2015 is employed to present empirical evidence. Our results describe a significant difference in fees and expenses structure led by Islamic funds. High diversification explains Islamic funds while strong positive growth is associated with the traditional funds, supporting the relation between fees and expenses and fund performance. The declining trend of fees corroborates the idea of a favourable economies of scale contradictory to the rising expenses structure. Nevertheless, Islamic funds present an excessive fees and expenses in offering high and low quality portfolio management.

The asymmetric performance of industry concentrated funds

In the present paper we study whether active management investment strategies lead to fund managers' investing and informational advantages as tend to rely on industry-concentrated portfolios. The methodology includes the analysis of the unconditional performance measures adjusted for different risk factors and fund characteristics. The hypothesis of testing statistical differences on the performance of concentrated and diversified Greek Capital Market fund portfolios has led to the estimation of Carhart (1997) and Fama and French (2010) models. In order to examine the market timing and stock picking fund managers’ skills, the Asymmetric Response Model (ARM) is estimated under the adjustment of Fama and French (2010) factors (Kousenidis and Negakis, 2013). Finally, our results are classified into tercile regimes and we test for abnormal performance persistence in tercile and Sectors level.

Penny Stocks: A Handy Tool for Enhancing Fund Performance?

AbstractThis study analyzes the characteristics of penny stocks and the benefits of including them in fund portfolios. First, we show that penny stocks provide abnormal returns that are not explained by traditional factor models; the liquidity factor seems to account for the excess performance. Second, we find that penny stocks can serve as a powerful investment vehicle for expanding the efficient frontier of the conventional investment set and that including them in fund portfolios improves a fund's performance. Third, we find that penny stocks held more by funds provide excess returns even for a 5‐factor model that includes a liquidity factor.

Practical Applications of The Myth of Hedge Fund Fee Diversification

Practical Applications Summary In The Myth of Hedge Fund Fee Diversification, published in the Fall 2019 issue of The Journal of Alternative Investment, Fei Meng, David Saunders (both at the University of Waterloo), and Luis Seco (at the University of Toronto) provide clear insights for hedge fund investors. Recent developments in the hedge fund industry have made more types of fee arrangements available. This study examines the optimality of alternative hedge fund fee structures from an investor’s perspective. Optimal fee structures correspond to the weights in a hedge fund portfolio that maximize its Sharpe ratio. The authors consider three types of hedge fund portfolios: one with a traditional fee structure, one with a first-loss fee structure, and one that is a blend of the other two (effectively a portfolio with a shared-loss fee structure). Results show that the optimal fee structure depends on a variety of factors—most notably, a hedge fund’s volatility. TOPICS:Real assets/alternative investments/private equity, manager selection

Mutual Fund Voluntary Portfolio Disclosure

ABSTRACT A growing fraction of individual investors delegate their portfolio management to professional managers. As a result, the importance of transparency and investor protections have increased in financial markets. In Spain, management companies must report their mutual fund portfolios quarterly to investors. However, this information may be disclosed on a monthly basis to private information providers. In this study, we examine the influence of performance on voluntary portfolio disclosure from 2003 to 2013. The transparency and reporting strategies may differ from fund industries with different level of development, we will discuss the implications of the results for emerging markets. We find a positive significant relationship between the probability of fund portfolio disclosure and fund performance, and this effect is more significant when we consider risk-adjusted performance measures. The addition of some control variables in the model shows that the probability of the fund portfolio to be reported is positively related to fund age, management company size and fees and is negatively related to fund size.

Challenging the Conventional Wisdom on Active Management: A Review of the Past 20 Years of Academic Literature on Actively Managed Mutual Funds

Just over 20 years have passed since the publication of Mark Carhart’s landmark 1997 study on mutual funds. Its conclusion—that the data did “not support the existence of skilled or informed mutual fund portfolio managers”—was the capstone of an academic literature, which began with Michael Jensen in 1968, that formed the conventional wisdom that active management does not create value for investors. We review the literature on active mutual fund management since the publication of Carhart’s work to assess the extent to which current research still supports the conventional wisdom. Our review of the most recent literature suggests that the conventional wisdom is too negative on the value of active management.

Challenging the Conventional Wisdom on Active Management: A Review of the Past 20 Years of Academic Literature on Actively Managed Mutual Funds

Just over 20 years have passed since the publication of Carhart’s landmark 1997 study on mutual funds. Its conclusion—that the data did “not support the existence of skilled or informed mutual fund portfolio managers”—was the capstone of an academic literature beginning with Jensen (1968) that formed the ‘conventional wisdom’ that active management does not create value for investors. In this paper, we review the literature on active mutual fund management since the publication of Carhart (1997) to assess the extent to which current research still supports the conventional wisdom. Our review of the most recent literature suggests that the conventional wisdom is too negative on the value of active management.