Fund Portfolio Research Articles

Trump's Tweeting Sentiment, Mutual Fund Portfolio, and Investor Preference

Trump's Tweeting Sentiment, Mutual Fund Portfolio, and Investor Preference

Can equity mutual funds outperform the benchmark and simple passive portfolios?

This study evaluates the risk-adjusted performance of equity mutual funds in Nigeria against the market benchmark and two alternative passive portfolios available to investors. Data on monthly net asset values (NAVs) of 30 actively managed, equity-based mutual funds that operated in Nigeria between 2012 and 2021 were collected and analyzed. Risk-adjusted performance measures including the Treynor ratio, Sharpe ratio, Jensen’s alpha, information ratio, Modigliani–Modigliani (M2) measure, Sortino ratio, and the Fama-French 3-factor regression model are used to evaluate the performance of mutual funds. Evidence shows that the Nigerian equity mutual fund portfolio does not deliver excess risk-adjusted returns, and underperforms the three simple passive portfolios against which it was benchmarked. However, mutual fund portfolios provide robust, low-cost diversification benefits and could be considered as part of a well-diversified portfolio of assets. This study explores investment strategies, with practical implications for investors, industry professionals, regulation, and academia. It provides a useful guide to retail investors and their advisers on managing their investment portfolios in the Nigerian stock market. In addition, it validates the veracity of the efficient-market hypothesis (EMH), implying that, on average, seeking alpha is, perhaps, a futile effort.

基于Black-Litterman模型的基金投资组合策略研究

基于Black-Litterman模型的基金投资组合策略研究

Can mutual fund investors benefit from volatility managing? Evidence from China

Using a comprehensive sample of Chinese mutual funds from 2004 to 2021, we find strong evidence that managing the intertemporal total (downside) risk of actively managed equity mutual funds significantly improves the performance in terms of alphas, Sharpe ratios, and Sortino ratios. Each volatility-managed strategy studied in this paper can survive transaction costs. By testing the relation between risk and return of mutual funds, we find the gains from managing the total (downside) volatility are attributed to both volatility timing and return timing. Empirical results are robust to alternative measurements of total (downside) volatilities, leverage constraints, rebalancing frequency, factor models, sample filters, and a portfolio of all mutual funds. There is no obvious relationship between fund flows and past fund total volatility in the Chinese fund market. However, after dividing the total volatility into upside and downside volatility, the fund flows are positively (negatively) related to the upside (downside) volatility, and these relations are more pronounced for institution-dominated funds.

Portfolio Turnover and Flow of Resources in Brazilian Equity Funds

In this article we analyze the effect of net funding (difference between new investments and redemptions occurring in the period) on the turnover of Brazilian equity fund portfolios. Turnover indicates the level of change in equity allocations in the period and in this study the proxy used was the Churn Rate. The database has 1,461 funds. The main results suggest a positive effect of net funding on turnover in equity portfolios of the sample funds. A moderation relationship could also be observed in the relationship between funding and turnover when considering funds that can invest abroad.

Active vs. passive, the case of sector equity funds

This paper examines performance of 95 actively managed U.S. sector equity mutual funds from 29 fund families relative to their peer exchange-traded funds, SPDR sector ETFs, in the period of 2008 to 2017. Our results do not show considerable evidence that actively managed sector mutual funds outperform their passive counterparties. None of the mutual fund portfolios produces a signifi- cant positive alpha through factor models or delivers a significant positive alpha against their peer ETFs. When focusing on the nine oldest actively managed Fidelity sector mutual funds, outperform- ance in the period of 1999–2010, which is reported in literature, appears to fade away during the pe- riod of 2011-2017. Alpha analyses of a larger sample of 60 sector mutual funds show similar performance deterioration in the same 19-year period. The results indicate that U.S. sector equity market has become more efficient in the past decade.

Analyzing the interest rate risk of equity-indexed annuities via scenario matrices

The financial return of equity-indexed annuities depends on an underlying fund or investment portfolio complemented by an investment guarantee. We discuss a so-called cliquet-style or ratchet-type guarantee granting a minimum annual return. Its path-dependent payoff complicates valuation and risk management, especially if interest rates are modelled stochastically. We develop a novel scenario-matrix (SM) method. In the example of a Vasicek-Black-Scholes model, we derive closed-form expressions for the value and moment-generating function of the final payoff in terms of the scenario matrix. This allows efficient evaluation of values and various risk measures, avoiding Monte-Carlo simulation or numerical Fourier inversion. In numerical tests, this procedure proves to converge quickly and outperforms the existing approaches in the literature in terms of computation time and accuracy.

Machine learning and fund characteristics help to select mutual funds with positive alpha

Machine-learning methods exploit fund characteristics to select tradable long-only portfolios of mutual funds that earn significant out-of-sample annual alphas of 2.4% net of all costs. The methods unveil interactions in the relation between fund characteristics and future performance. For instance, past performance is a particularly strong predictor of future performance for more active funds. Machine learning identifies managers whose skill is not sufficiently offset by diseconomies of scale, consistent with informational frictions preventing investors from identifying the outperforming funds. Our findings demonstrate that investors can benefit from active management, but only if they have access to sophisticated prediction methods.

When school ties meet geography: Education-province bias in mutual fund portfolios

Fund managers tilt towards stocks from the location of their tertiary education (education province). We find that, compared with their peers, fund managers overweight stocks headquartered in their education provinces. This overweighting differs from other biases, such as local bias, hometown bias, and educational ties, and is detrimental to fund performance. Funds with more education-province bias have poorer fund performance and higher idiosyncratic risk than those with less bias. Further analysis shows that education-province bias is more evident during poor market times, among underperforming funds, for stocks with less information asymmetry, in economically depressed provinces, and when fund managers are educated at lower-ranked institutes. Overall, our findings suggest that education-province bias is largely attributed to fund managers’ familiarity bias.

Beating the market with a simple proposed portfolio and technical trading rules

This study presents evidence that well-known technical trading rules (TTRs) applied to a proposed simple exchange-traded fund (ETF) portfolio provide better risk-adjusted performance than the ‘market’ and top-ranked balanced funds (BFs). We form a portfolio of two well-known ETFs and apply some well-known TTRs like Moving Average (MA), Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) techniques to this simple proposed portfolio from January 31, 2007 to August 31, 2021. We design two strategies: (1) Long/Money and (2) Leverage/Money. We compare the risk-adjusted performance of some well-known trading rules applied to our proposed portfolio with strategy (1), Long/Money, which is a more conservative investment strategy, to the risk-adjusted performance of 14 top-ranked BFs. The best trading rules with strategy (1) applied to our portfolio outperform all the top-ranked BFs for the entire period and over two equal sub-periods. Similarly, the best trading rules applied to our portfolio with strategy (2) outperform the ‘market’, a Buy and Hold (B&H) strategy for the entire period and over two equal sub-periods. This paper contributes to the literature examining the common assumptions of efficient markets and could have important practical implications for many fund managers. In addition, the social impact of our paper could affect thousands of retail traders who are trying to ‘beat’ the market.

The Impact of Green Climate Fund Portfolio Structure on Green Finance: Empirical Evidence from EU Countries

The financing sector drives the Future of Environmental Funds to achieve climate financing. In this study, we have employed panel regression analysis and the generalized two-step moment method (GMM) for the 25 EU countries from 2000 to 2021 to explore the relationship between green financing and the portfolio structure of green climate funds. According to the findings of this research, green financing significantly impacts quality economic growth. The GCFs enhance the capacity to channel public and private funding while contributing to de-risking more conventional forms of funding, increasing climate financing, and boosting the GCFs. In addition, the study concluded that Global Climate Support might fund nonbankable components of more significant “almost bankable projects” by analyzing the portfolio’s policies and methods.

The Dollar Cost Averaging, Lump Sum, and Value Averaging Strategies in Mutual Fund Investments

Investment strategy and portfolio management are crucial considerations when investing in mutual funds. This research aims to analyze the effectiveness of achieving optimal returns by simulating dollar cost averaging, lump sum, and value averaging approaches. This analysis is conducted about the performance of a mutual fund portfolio, utilizing the Sharpe and Treynor methods. The research sample employs a purposive sampling technique, selecting the top 5 mutual funds in terms of performance, managed by different investment managers in the year 2022. Simulations are being conducted over three specific periods. In addition to mutual funds, a comparative analysis was conducted involving the Jakarta Composite Index (JCI) and 10-year government bond yields (SUN). The simulation results on equity funds for the three periods indicate that the Lump Sum investment method outperforms dollar cost averaging and value averaging, particularly over 6 years. This finding is further corroborated by the Kruskal-Wallis test, which highlights a significant variance in return performance. The results of the Sharpe and Treynor investment methods exhibit significant differences, as confirmed by the Mann-Whitney test. Lastly, regarding benchmark comparisons, the performance of equity funds surpasses that of the benchmark.

Differential treatment in the bond market: Sovereign risk and mutual fund portfolios

How do international investors adjust their portfolios in response to sovereign risk? We answer this question by combining data on default probabilities for 31 developed and emerging markets with monthly data on the portfolios of individual bond mutual funds. We show that bond funds reduce their exposure to a country when sovereign default risk increases, indicating that changes in yields do not fully compensate investors for additional sovereign risk. We find that the magnitude of the response is heterogeneous. Portfolio weights of high-risk countries are more sensitive to sovereign risk, while core developed markets appear to enjoy preferential treatment, with their portfolio weights little affected by sovereign risk. Fund characteristics, such as past performance, also affect sensitivity to sovereign risk. Finally, we document what determines the destination of reallocation flows. Funds shift their assets to countries outside the immediate geographic region while avoiding markets to which they are heavily exposed.

Weighting Analysis of a Fund Portfolio of China's New Energy Vehicle Stocks

We studied the optimal weighting allocation for a portfolio of stocks in China's new energy vehicle industry, using data on circulation market value, price-to-earnings ratio P/E, growth of net profit after deductions, and institutional position share of the new energy industry for the three years 2019-2021. The return was also considered from the above four dimensions. Combining the above four dimensions, a better model for determining the weight of the new energy vehicle stock portfolio is obtained.

Measuring cryptocurrency moment convergence using distance analysis

AbstractThis study measures the convergence and divergence of major cryptocurrencies by applying two distance measures used in machine learning. Particularly, the time-varying Euclidean distance measure was constructed by combining the first four moments (i.e. mean, variance, skewness and kurtosis) of the return distributions of cryptocurrencies following the $$\ell ^{2}$$ ℓ 2 -normalisation. It was found that major cryptocurrencies converged to the centroid during the 2018 market crash, but diverged before and after the crash. Their divergence could be due to the uncertainty arising from market news and regulatory events. In addition, Bitcoin cosine similarity measure was developed to provide further insights into the relationship between Bitcoin and other cryptocurrencies. This cosine similarity shows how each cryptocurrency moves relative to Bitcoin, which is not captured by the Euclidean distance. More importantly, it was demonstrated that the divergence of major cryptocurrencies from their centroids can improve Markowitz’s efficient frontier and provide more diversification benefits to investors and portfolio fund managers. Finally, a profitable trading strategy was provided based on the Euclidean distance.

Exploration of Cash Flow Management Strategy and Financial Performance of Saccos in Imenti North Sub-County, Kenya

The study sought to explore the influence of cash flow management strategy on financial performance of Saccos in Imenti North Sub-County, Kenya. Descriptive research design was adopted to collect data from 21 deposit and non-deposit Saccos located in Imenti North Sub-County. The target respondents included 42 accounts department officers, 114 tellers, 93 back-office staff, and 120 loan officers hence a total of 369 respondents. Descriptive and inferential statistics were used to analyze the data. Cash flow management strategy had a correlation coefficient r=0.772** at α < 0.000 and a 99% significance level. The study established that the investment department was still undeveloped in many Saccos therefore limiting on the authorization of incorporation of funds in investment options like capital markets. This limited the Saccos to act as mere institutions of accepting deposits and savings, while at the same time issuing loans. This method of operation at many times did not guarantee consistent income due to competition from other financial institutions doing similar work. The study thus recommends that the Board of Management [BOM] should create policies and provide adequate funds to establish an investment department, if there is none, or strengthen it if in existence. The contribution to the study is that a quality policy structure would introduce the Saccos to endless opportunities in investment at capital markets which has a well-structured and managed fund portfolio. In return, this would improve the income since the operations of the Saccos would have been diversified spreading into various classes of investments available.

Are green and socially responsible funds more efficient than conventional funds? A DEA approaches

PurposeThe main goal of this paper is better understand the risk/return trade-off of investing in socially responsible investment funds (SRIF) and green investment funds (GIF).Design/methodology/approachTo achieve our aim a green investment fund portfolio, a socially responsible investment portfolio and a conventional fund (CF) portfolio from the United States of America (USA) were selected to compare the efficiency of these three different portfolios, by using Value-Based Data Envelopment Analysis (DEA) methodology.FindingsThe results point out that SRIF and GIF are more efficient than CF. For five years, the CFs have not outperformed the GIF.Originality/valueThe results suggest that there is a growing awareness on the part of investors that sustainable companies are the companies that will allow a better quality of life and a more sustainable environment. It seems that somehow managers and investors are aware that the market will compensate them for thinking about a cleaner and more equitable world.

The Role of Fund Managers in Diversifying Endowment Investment Portfolios of Malaysian Public Universities

Endowment is one of the most important sources of income globally for higher education institutions, and it should be invested for permanent use. Unfortunately, such funds are not optimally managed in Malaysia’s public universities. Therefore, this study was conducted to find ways to manage funds effectively among universities with the highest recorded collection of endowment funds. The participating universities in the study were: Universiti Malaya, Universiti Kebangsaan Malaysia, and Universiti Teknologi Malaysia. Interviews were conducted with representatives from their financial divisions. This study found that endowment funds in Malaysian public universities can be better invested with the appointment of dedicated fund managers. Their role is to assess the assets in which to invest with their expert knowledge to enhance the investment portfolio of endowment funds.

Kelly Criterion and its Application

Kelly Criterion is a betting strategy that maximizes the long-term growth rate of principal in independent repeated bets. Kelly formula is beneficial to fund management and portfolio investment, and its application in investment is particularly prominent. In this paper, we take Kelly's criterion as the center, give the proof of Kelly's criterion with different methods and angles, and generalize it to a more general form. At the same time, this paper also illustrates the rationality of Kelly's criterion through examples and data simulation.

An Evaluation of Local Implementing Partner Performance During the First 2 Years of the USAID/PEPFAR Transition.

Locally led and owned development is considered the best practice for international aid. As an implementing agency for the U.S. President's Emergency Plan for AIDS Relief (PEPFAR), the U.S. Agency for International Development (USAID) supported the goal of transitioning 70% of its portfolio funding directly to local organizations by 2020, including partner country governments. However, limited evidence or evaluation exists on how such a transition can help achieve HIV-related health outcomes. We evaluated monitoring, evaluation, and reporting performance; calculated indicators; and quality of service across the HIV/AIDS treatment cascade for local and international partners in the USAID/PEPFAR portfolio implementing similar programs during the U.S. Government fiscal years (FY) 2019 to 2020 (October 1, 2018-September 30, 2020). We compared results aggregated globally, by country, and across individual partners. Globally, local partners met a lower proportion of their treatment targets than international partners and did not meet targets for pre-exposure prophylaxis or voluntary medical male circumcision in FY2020. However, local partners exceeded targets in programs supporting orphans, vulnerable children, and key populations affected by HIV/AIDS. Local partners also had testing positivity, linkage rates, and viral load suppression that were equivalent to or higher than that of international partners. Based on available assessments, local partners displayed quality of service delivery comparable to international partners. Local partners faced challenges, including unfamiliarity with USAID funding, increasing targets across several indicators, and the syndemics of HIV/AIDS and COVID-19. A higher percentage of targets and funding led South African local partners to yield an outsized effect on global percent target achievement. While these findings should be interpreted cautiously due to limited sample size and short time horizon, they are a key first step in evaluating the local partner transition support of the long-term goal of sustained epidemic control of HIV/AIDS.