Relative Performance Of Funds Research Articles

Do performance measures matter for stock mutual funds? An international analysis

PurposeThe purpose of this study is to evaluate whether the classification of the equity mutual fund depends on the performance measure used.Design/methodology/approachThe sample for this study includes stock mutual funds for the USA, Europe and emerging market economies covering the period 2010 to 2020. Using more than 20 performance measures the results are compared using the Sharpe ratio as the reference.FindingsThe results show that performance measures based on absolute reward–risk ratios like Sortino, Treynor, etc. have similar rankings, because in general the numerator (mean excess return) is the same. However, when the authors employ other types of performance measures, results may be significantly different, especially in the case of metrics for “incremental returns”, i.e. alphas. Focussing on markets, their results show that choosing performance measures is more relevant for emerging markets.Research limitations/implicationsThe sample is only limited to the USA, Europe and the emerging market, and there are other performance metrics in the literature which have not been covered in this work.Practical implicationsThe ordering of equity mutual funds depends on the measure used, specially if investors employ factor models to measure excess returns (alphas). Hence, policy formulation on disclosure of mutual fund performance should encourage the use of several metrics from different families. Investors must be aware of the different rankings made and the most appropriate metrics based on their preferences.Originality/valueThis paper focusses specifically on the effect that performance metrics have on relative fund performance. Previous studies have ignored alpha metrics to rank funds, which are commonly employed by investors. The authors’ study performs an analysis for three different markets considering the two main developed ones (the American and European equity markets), as well as the emerging one, largely ignored until now.

Dynamic network DEA approach with diversification to multi-period performance evaluation of funds

When analyzing the relative performance of mutual funds, current data envelopment analysis (DEA) models with diversification ignore the performance change in consecutive periods or the dynamic dependence among investment periods. This paper introduces a novel multi-period network DEA approach with diversification and directional distance function. The new approach decomposes the overall efficiency of a mutual fund in the whole investment interval into efficiencies at individual periods. At each period, mutual funds consume exogenous inputs and intermediate products produced from the preceding period to produce exogenous outputs and intermediate products for the next period to use. Efficiency decomposition reveals the time at which the inefficiency occurs. The new model can provide expected inputs, outputs and intermediate variables at individual periods, which are helpful for managers to find factors causing the overall inefficiency of a fund. Under the assumption of discrete return distributions and a proper choice of inputs, outputs and intermediate variables, the proposed models can be transformed into linear programs. The applicability and reasonability of the proposed method are demonstrated by applying it to assess the relative performance of funds in Chinese security market and European security market, respectively.

Presentation Format and Financial Literacy: Accessibility and Assessability of Retirement Savings Statements

While increased financial literacy may improve individual retirement savings decisions, modifying the placement of key information in retirement savings statements can produce further improvements. We examined the extent to which placement of information and financial literacy affected the accessibility of information for individuals and assisted in their financial decision making. We also disaggregated financial literacy into numeracy and knowledge to identify key drivers. Using an experimental design, we find the increased salience resulting from modifying the presentation format improved participants' ability to locate important information (accessibility) and to evaluate the relative performance of funds (assessability). However, the incremental benefits of placement are only found for individuals with moderate numeracy skills. We conclude there is value accruing from financial literacy programs as advocated by regulators, but suggest additional benefits may be reaped from focusing on numeracy skills and from using presentation formats that improve information accessibility and assessability.

Fee Levels, Performance and Alignment of Interests in Private Equity

While PE data is subject to time-lag and still US-centric, twenty years of data provide grounds for a thorough analysis of private equity funds (PEF) performances. To do so, we model gross returns for US and EMEA PEFs. We benchmark returns with total market indexes (TMI) using the PME method with the DPI as a regulator of distributions. We find that average US funds perform in line with the calculated benchmarks on a net and gross basis: funds have marginally better IRRs; indexes better multiples. Carried interest has no material impact on the relative performance of funds: when a vintage underperforms the index on a net basis, this holds true on a gross basis. Top quartile funds show an outperformance on a net and gross basis, and timing of cash-flows explains part of this performance. Computing “Bain Capital scenarios” show that the 1%-30% formula is marginally more attractive than a 1.5%-20%, increasing returns by 2.3% over 16 years (0.15% per year). We conclude that more than levels of management fees and carried interest, the level of preferred return rate might reduce the alignment of interests between fund managers and investors. Calculating a spread with PME -DPI index and sharing the resulting alpha might prove more efficient.

Successor Private Equity Funds: Evidence from Non-Listed Real Estate Funds

This study applies a logistic regression model to assess the determinants of the follow-up of first time real estate private equity funds. Using a large global sample of returns delivered by value-added and opportunistic real estate private equity funds between 2000 and 2008, we conduct logistic regression analyses to find out which factors drive the probability of fund follow-up for first time funds. Relative fund performance, fund size, a U.S. investment focus, and the underlying real estate market performance during the lifetime of the fund are found to be positively related to the probability of raising a follow-up fund.

Implied Measures of Relative Fund Performance

We evaluate the relative performance of funds by conditioning their returns on the cross-section of portfolio characteristics across fund managers. Our implied procedure circumvents the need to specify benchmark returns or peer funds. Instead, fund-specific benchmarks for measuring selection and market timing ability are constructed. This technique is robust to herding as well as window dressing and mitigates survivorship bias. Empirically, the conditional information contained in portfolio weights defined by industry sectors, assets and geographical regions is critically important to the assessment of fund management. For each set of portfolio characteristics, we identify funds with success at either selecting securities or timing-the-market.

Performance of open‐ended real estate funds in Germany

PurposeIn Germany, open‐ended funds represent the prevailing form of indirect real estate investment for retail and institutional investors. The purpose of this paper is to address whether significant performance differences occur between retail and institutional funds.Design/methodology/approachThe relative fund performance of 137 funds investing in Germany and abroad are each measured against tailored Investment Property Databank performance benchmarks of direct property investments. Such benchmarks shall mimic the asset allocation of any particular fund. Data on retail fund performance are retrieved from the fund association BVI, the data on institutional fund performance are derived from the individual statements of accounts for each fund.FindingsGerman open‐ended funds show significant differences in mean relative returns. The differences are mainly driven by the respective asset allocation of the funds, although relative returns against tailored benchmarks as dependent variables are supposed to offset country‐specific return fluctuations. Institutional investors tend to be better‐off than retail investors.Research limitations/implicationsLiquidity holdings are not (and can not be) extracted from fund performance with the given data. In this regard, it must be acknowledged that retail funds by nature are induced to carry more liquidity. Second, the high significance of the factor asset allocation may indicate that country‐specific benchmarks could still be tailored more effectively. However, the conclusions from this paper remain unaffected. Ex post variations in the grouping of funds explain additional fund performance variance. In particular, it would be interesting to analyze the performance patterns of single‐investor funds and the influence or control that is being exercised by single‐investors in institutional funds.Originality/valueResults give new insights into the performance of open‐ended real estate funds. The analysis helps explaining performance patterns and contributes to an improved understanding of the German indirect real estate investment market.

On Tournament Behavior in Hedge Funds: High Water Marks, Managerial Horizon, and the Backfilling Bias

We analyze the risk choices by hedge funds that perform poorly, relative to other funds and in absolute terms - and test predictions on the extent to which these decisions are related to the fund's incentive contract, investment horizon and dissemination of performance information. We find that tournament behavior is more prevalent in the (backfilled) period when funds may be at an incubation stage, before they start voluntarily reporting to a database. Excluding backfilled data, we find that variance shifts depend on absolute rather than relative fund performance. Consistent with theoretical arguments, the propensity for losing funds to increase risk is significantly weaker among those that tie the manager's incentive pay to the fund's high-water mark - suggesting a possible benefit from such incentive structures - and among funds that face little immediate risk of closure. Overall, the combination of factors such as reporting performance to a database, high-water mark provisions, and low risk of fund closure appear to make poorly performing funds more conservative with regard to risk-shifting.

Implied measures of relative fund performance

We evaluate the relative performance of funds by conditioning their returns on the cross-section of portfolio characteristics across fund managers. Our implied procedure circumvents the need to specify benchmark returns or peer funds. Instead, fund-specific benchmarks for measuring selection and market timing ability are constructed. This technique is robust to herding as well as window dressing and mitigates survivorship bias. Empirically, the conditional information contained in portfolio weights defined by industry sectors, assets, and geographical regions is important to the assessment of fund management. For each set of portfolio characteristics, we identify funds with success at either selecting securities or timing-the-market.

The Illiquidity Puzzle: Theory and Evidence from Private Equity

This paper presents a theory of liquidity where we explicitly model the liquidity of the security as a choice variable, which enables the manager raising the funds to screen for deep pocket investors, i.e. these that have a low likelihood of a liquidity shock. By choosing the degree of illiquidity of the security, the manager can influence the type of investors the firm will attract. The benefit of liquid investors is that they reduce the manager's cost of capital for future fund raising. If inside investors have fewer information asymmetries about the quality of the manager than the outside market, more liquid investors protect the manager from having to return to the outside market, where he would face higher cost of capital due to asymmetric information problems. We test the predictions of our model in the context of the private equity industry. Consistent with the theory, we find that transfer restrictions on investors are less common in later funds organized by the same private equity firm, where information problems are presumably less severe. Contracts involving the close-knit California venture capital community - where information on the relative performance of funds are more readily ascertained - are less likely to employ many of these provisions as well. Also, private equity partnerships whose investment focus is in industries with longer investment cycles display more transfer constraints. For example, funds focusing on the pharmaceutical industry have more constraints, while those specializing in computing and Internet investments have fewer constraints. Finally, we investigate whether the identity of the investors that invest in a private equity fund is related to the transferability of the stakes. We find that transferability constraints are less prevalent when private equity funds have limited partners that are known to have few liquidity shocks, for example endowments, foundations, and other investors with long-term commitments to private equity.

Offshore Hedge Funds: Survival and Performance, 1989–95

We examine the performance of the offshore hedge fund industry over the period 1989 through 1995 using a database that includes defunct as well as currently operating funds. The industry is characterized by high attrition rates of funds and little evidence of differential manager skill. We develop endogenous style categories for relative fund performance measures and find that repeat-winner and repeat-loser patterns in the data are largely due to style effects in that data.

Closed–End Fund Performance

RICHARD SPURGIN is an assistant professor of finance at Clark University in Worcester, Massachusetts. R ecent studies on the performance of closed-end country fund performance have concentrated on analyzing the levels and changes in fund discounts, the sources of excess volatility of closed-end funds relative to net asset value, and the pricing of closed-end country funds, as well as the implications of the introduction of closedend funds on capital market integration Ž and market efficiency Lee et al. 1991 ; Bailey and Lim 1992 ; Johnson et al. 1993 ; Diwan et al. 1993 ; Hardouvelis . et al. 1995 ; Malkiel 1995 . Most of these analyses, however, concentrate on closedend country funds traded in the United States. Few studies exist on the relative performance of comparable closed-end country funds traded in the United States and other international capital markets Ž . e.g., United Kingdom . Differences in fund clientele and market structure may explain some of the variation in the price of the fund relative to the net asset value Ž . Ammer 1992 . In this article, a paired set of comparable closed-end country funds traded in the United States and the United Kingdom are analyzed for their relative fund performance as well as their relative discount or premium to net asset value Ž . NAV . The next section reviews previous evidence on the factors that determine fund return and the discount premium of closed-end funds. The data and methodology used in the study are presented in the third section. Shares in closed-end country funds are issued in one country, referred to herein as the host country, and the fund makes investments in another country, termed the local country. If investor sentiment plays a role in the value of the fund, then there are two possible sources of changes in sentiment. Investors could be responding to changes in the local country or responding to changes in the host country. As in previous studies, we compare closed-end country fund price and discount returns with an index from the Ž host country the United States and the . United Kingdom and also the local market index. Using funds that have the same local country but different host countries allows us to gain insight into the role of the host country’s index on the discount. These results are discussed in the fourth section. Results indicate that, although the discount return may be related to investor sentiment impacts, the actual process that drives the discount is complex. Results indicate that there is a higher correlation between the discount returns and the host country index than