Spanish Mutual Funds Research Articles

Unravelling risk selection in Spanish general government employee mutual funds: evidence from cancer hospitalizations in the public health network

Government employees in Spain are covered by public Mutual Funds that purchase a uniform basket of benefits, equal to the ones served to the general population, from private companies. Companies apply as private bidders for a fixed per capita premium hardly adjusted by age. Our hypothesis is that this premium does not cover risks, and companies have incentives for risk selection, which are more visible in high-cost patients. We focus on a particularly costly disease, cancer, whose prevalence is similar among government employees and the general population. We compare hospitalisations in the public hospitals of the government employees that have chosen public provision and the general population. We analysed a database of hospital discharges in the Valencian Community from 2010 to 2015 (3 million episodes). Using exact matching and logistic models, we find significant risk selection; thus, in hospitalised government employees, the likelihood for a solid metastatic carcinoma and non-metastatic cancer to appear in the registry is 31% higher than in the general population. Lymphoma shows the highest odds ratio of 2.64. We found quantitatively important effects. This research provides indirect evidence of risk selection within Spanish Mutual Funds for government employees, prompting action to reduce incentives for such a practice. More research is needed to figure out if what we have observed with cancer patients occurs in other conditions.

Can Artificial Neural Networks Predict the Survival Capacity of Mutual Funds? Evidence from Spain

Recently, the total net assets of mutual funds have increased considerably and turned them into one of the main investment instruments. Despite this increment, every year a considerable number of funds disappear. The main purpose of this paper is to determine if the neural networks can be a valid instrument to detect the survival capacity of a fund, using the traditional variables linked to the literature of disappearance funds: age, size, performance and volatility. This paper also incorporates annualized variation in return and the Sharpe ratio as variables. The data used is a sample of Spanish mutual funds during 2018 and 2019. The results show that the network correctly classifies funds into surviving and non-surviving with a total error of 13%. Moreover, it shows that not all variables are significant to determine the survival capacity of a fund. The results indicate that surviving and non-surviving funds differ in variables related to performance and its variation, volatility and the Sharpe ratio. However, age and size are not significant variables. As a conclusion, the neural network correctly predicts the 87% of survival capacity of mutual funds. Therefore, this methodology can be used to classify this financial instrument according to its survival or disappearance.

Classifying Spanish mutual funds according to their survival capacity using SOM

Classifying Spanish mutual funds according to their survival capacity using SOM

Leaders and followers in mutual funds: A dynamic Bayesian approach

AbstractThis article proposes a dynamic Bayesian framework to analyze the leadership relationships between mutual funds. To this end, a two‐step procedure is proposed. First, a Bayesian rolling window based on the Capital Asset Pricing Model is used to estimate the evolution of mutual funds' market exposure over time. Then, a vector autoregressive (VAR) model is used to analyze the leader‐follower relationship between pair of mutual funds. Several leadership measures are studied. An application to Spanish mutual funds is carried out. In addition, the study examines the determining factors of mutual fund leadership.

Mutual Funding

Abstract Using data on Spanish mutual funds, we show that bank-affiliated funds provide funding support to their parent company via purchases of bonds in the primary market. Support from affiliated funds is more sizeable in crisis times and for riskier banks. These trades generate negative abnormal returns and thus benefit banks at the expense of fund investors. To minimize negative effects on their asset management business, banks concentrate the burden of funding support in funds without performance fees and those catering to retail investors. We provide evidence consistent with funding support helping to limit credit rationing over the 2008–2012 period.

Efficiency of mutual fund managers: A slacks-based manager efficiency index

This paper develops an innovative slacks-based manager efficiency index (SMEI) to evaluate the efficiency of mutual fund managers. First, the SMEI contributes to decisions by evaluating the efficiency of the manager as a whole instead of focusing on individual mutual funds. Second, the SMEI includes socio-demographic variables to extend the mere consideration of financial variables in the model. Third, the SMEI identifies locally efficient but globally inefficient managers. This local SMEI evaluates managers in reference to the ‘best practice’ competitors with similar management characteristics. Finally, this paper includes a real application of the SMEI in a sample of individual managers in the Spanish mutual fund industry. This empirical illustration further examines the persistence of the efficiency scores and the influence of the SMEI variables on the efficiency of individual managers.

Spanish Mutual Funds: Short-Term Performance and Market Timing

This paper examines the short-term performance and market timing ability of equity mutual funds in Spain between 1990 and 2015. Using a sample of daily returns, we document strong evidence of performance persistence and market timing ability across deciles in the post-ranking quarter. We document that not only the best and worst managers show persistence in the ability to select stocks. Our evidence is robust across several performance models and on the state of the business cycle. We also document that successful fund managers adjust the market exposure of fund portfolios in reaction to macroeconomic predictions. Our results suggest that a sample of Spanish mutual funds exploit the predictability of market returns documented in the finance literature and investors could obtain higher returns by following a simple buy-and-hold strategy.

Implications of manager replacement: evidence from the Spanish mutual fund industry

We analyse the financial consequences of manager replacement in a sample that includes all domestic and European equity funds in Spain. Specifically, we examine a total of 104 funds of the sample that experience manager turnover over the period 1999–2009. We find that underperforming funds in the pre-replacement period experience a significant improvement in the excess returns and performance after the manager change, an improvement that lasts over time for domestic equity funds. The analysis of the risk profile indicates that funds experiencing a manager change do not show significantly different levels of risk before the replacement dates although they tend to show an increase in the level of total risk after the change. Finally, the pool-regression analysis of the investment flows confirms that manager changes tend to impact negatively on subsequent flows of those funds with manager turnover.

Price support by bank-affiliated mutual funds

Fund managers are double agents; they serve both fund investors and owners of management firms. This conflict of interest may result in trading to support securities prices. Tests of this hypothesis in the Spanish mutual fund industry indicate that bank-affiliated mutual funds systematically increase their holdings in the controlling bank stock around seasoned equity issues, at the time of bad news about the controlling bank, before anticipated price drops, and after non-anticipated price drops. The results seem mainly driven by bank managers׳ incentives. Ownership of asset management companies thus matters and can distort capital allocation and asset prices.

The Role of Investor Type in the Pension Plan Fees Structure

This paper examines the role of investor type in the pension plan fees structure, using a dataset consisting of two classes of Spanish defined-contribution private pension funds: employer-sponsored and individual. The Spanish case has two interesting characteristics. One is that heavy of dominance by banks as pension plan providers and managers increases the risk of conflicting interests. The other is that Spanish mutual fund law imposes caps on all types of fees. We observe important differences in the determinants of fees between these two classes of pension plans. We find evidence of market penetration strategies in individual plans but none in employer-sponsored plans. In these, fees are negatively related to the market share of the financial group, whereas in individual plans this relationship is negative for management fees but positive for custodian fees. Finally, except in the case of custodian fees in individual plans, we find that all fees diminish when the custodian firm and the management firm belong to different financial groups.

Measuring Market Power in the Spanish Mutual Funds Industry for Retail Investors

The mutual fund industry is characterized by high concentration and a high number of offered funds. During last year, the Spanish management companies have reported for the whole market a margin, measured by the Lerner index, of between 25 and 28 per cent. By using an econometric structural model of competition among management companies, it is shown how mutual fund elasticities are low in the retail market. This result casts doubts about the effectiveness of the fee-caps at work. Moreover, a simple model of monopolistic competition pricing is assumed, what it provides estimations of their actual margins above 40 per cent in that market. In order to address this lack of competition, some regulatory measures are proposed.

Competition and structure of the mutual fund industry in Spain: The role of credit institutions

In industries where consumers prefer to make all their purchases from a single company (for example, a supermarket), companies tend to offer a greater variety of products. By using that strategy, they succeed in growing their market share in the industry and gaining market power. This behaviour is also typical of the financial industry, where consumers usually prefer to concentrate all their financial operations in a single entity. In Spain, the big growth of mutual funds since 1995 and the model of universal banking, suggest the existence of these cross-effects on demand (spillovers). In this paper, we provide empirical evidence of the presence of these effects in the Spanish mutual fund market. Moreover these effects are stronger than in the US market. The intensity of the effects appears to be greater in the retail mutual fund segment than in the wholesale segment. This result would be consistent with the relative increase in the number of funds offered by management companies, the higher fees charged, and the stronger degree of concentration of fund families found in the retail segment.

Competition and Structure of the Mutual Fund Industry in Spain: The Role of Credit Institutions

In industries where consumers prefer to make all their purchases from a single company (for example, a supermarket), companies tend to offer a greater variety of products. By using that strategy, they succeed in growing their market share in the industry and gaining market power. This behavior is also typical of the financial industry, where consumers usually prefer to concentrate all their financial operations in a single entity. In Spain, the big growth of mutual funds since 1995 and the model of universal banking, suggest the existence of these cross-effects on demand (spillovers). In this paper, we provide empirical evidence of the presence of these effects in the Spanish mutual fund market. Moreover these effects are stronger than in the US market. The intensity of the effects appears to be greater in the retail mutual fund segment than in the wholesale segment. This result would be consistent with the relative increase in the number of funds offered by fund managers, the higher fees charged, and the stronger degree of concentration of fund families found in the retail segment.

A nonparametric approach to market timing: evidence from Spanish mutual funds

The measuring of market timing abilities in investment portfolios is a relevant and widely analyzed question. Since the traditional parametric methodology can lead to biased results, we apply the nonparametric approach trying to overcome these biases and compare the results obtained by both methods. This comparison can help the readers to understand the role played by the assumptions behind each approach. We confirm the finding previously found in the literature about negative market timing abilities of Spanish equity fund managers. This finding suggests that neither the documented specification problems of the traditional models (heteroskedasticity, outliers and non-normality in financial data) nor the aggressiveness of some misinformed managers explain the poor timing abilities of managers.

Mutual fund performance: banking versus independent managers

We examine the performance of mutual fund managers for a sample of Spanish mutual funds considering data on active management, loads, size and the number of funds managed per manager. We find evidence of differences in fund performance according to management: independent managers outperform their banking counterparts even when the lower associated fees are considered. Overall, our results suggest that superior active managers do exist and the slight discrepancies which arise between managers can be interpreted as agency problems.

Spanish Mutual Funds Yield: An Analysis of Its Determinants

This working document analyses the Spanish mutual fund performance in the pe-riod 2000-2009 based on a set of variables which characterise such institutions. The model proposed, which includes non-observable variables which we relate to the skill of the fund manager, is based on the generalised method of moments (GMM) technique applied to panel data. The results of the estimation do not allow us to conclude that there is systematic persistence in the yields of investment funds. Nei-ther do we find that the funds charging higher management and custody fees per-form better. Some variables characterising the fund management company do seem to have a bearing on the yield of the fund. For example, we find that the larger the market share of the fund management company, the lower tends to be the yield, and that the funds of management companies belonging to banks and savings banks also tend to show higher yields. Conversely, variables specific to a fund, such as size or age, do not seem to have a bearing on its performance.

Price Support by Bank-Affiliated Mutual Funds

Fund managers are double agents; they serve both fund investors and owners of management firms. This conflict of interest may result in trading to support securities prices. Tests of this hypothesis in the Spanish mutual fund industry indicate that bank-affiliated mutual funds systematically increase their holdings in the controlling bank stock around seasoned equity issues, at the time of bad news about the controlling bank, before anticipated price drops, and after non-anticipated price drops. The results seem mainly driven by bank managers’ incentives. Ownership of asset management companies thus matters and can distort capital allocation and asset prices.

The Spanish Mutual Funds: New Surprises in the Period 2000-2009

This paper concludes a research on the Spanish Mutual Funds which appeared in a previous work covering the period of the 90’s. Taken together, both papers cover a period of 18 years that allows to reach some unusual conclusions. In the first paper, the Spanish Equity Mutual Funds underperformed the market by 5,7%. This abnormally huge difference could be partially explained by the high commissions charged by the funds, and by important errors in managing the funds’ portfolios, in particular: lack of diversification and wrong attempts to time the market. However, these explanations were not sufficient to account for the extremely poor performance of six funds which lagged the market by ten percentage points. The results in this new paper show a significant improvement in the return of the funds without any further evidence of the gross management errors so frequent in the 90’s. However, the Spanish funds continued to underperform the market in the last ten years and, at their present rate of improvement, they will need more than ten years to reach a performance comparable to that of the U.S. Mutual Funds. This papers reports three odd results: 1) the funds’ return-risk ratio is negative (i.e. funds with higher return assumed less risk than those with lower returns), 2) the index funds had a dismay performance lagging the market by more than 5% in return, and 3) high funds’ costs and fees do not account to explain fully the difference in return between the market and the funds. ?Where are the hidden costs? Decidedly, the Spanish Mutual Funds are quite peculiar which, perhaps, convert them into an interesting research topic. (Este trabajo concluye otro anterior centrado en la decada de los noventa sobre este mismo tema. En su conjunto, los dos trabajos abarcan 18 anos, por lo que pueden ofrecer conclusiones bastante contrastadas sobre el comportamiento de estos fondos. En el estudio anterior, la rentabilidad de los fondos se situo muy por debajo de la de la bolsa. Esta diferencia, mucho mayor que la habitual, se podia explicar por las comisiones de los fondos y por errores importantes y generalizados de sus gestores. Sin embargo, quedaban seis fondos con resultados muy negativos que no tenian una explicacion evidente. En este nuevo estudio hay una mejora significativa en la rentabilidad de los fondos. Su diferencia con la bolsa se ha reducido y no hay evidencia de los frecuentes errores de gestion del periodo anterior. A pesar de ello, la rentabilidad de los fondos, en su conjunto, sigue siendo poco satisfactoria, y al ritmo de mejora actual pasaran mas de diez anos antes de que alcancen la situacion actual de los fondos americanos, que dista de ser modelica. En este estudio aparecen tres nuevas sorpresas: 1) los fondos tienen una relacion rentabilidad-riesgo inversa, es decir, los mas rentables son los de riesgo menor; 2) la aparicion de los fondos indice ha sido decepcionante, con resultados inaceptables salvo algun caso concreto, y 3) la diferencia de rentabilidad entre la bolsa y los fondos no se puede explicar solo por sus gastos conocidos: ?donde puede estar la diferencia pendiente? Decididamente, los fondos de inversion espanoles son singulares, lo que los convierte en un tema de investigacion muy atractivo. )

Market penetration strategies and the fee–performance relationship: the case of Spanish money mutual funds

This article shows that market penetration strategies are common practice during the product introduction stage in the money mutual funds in Spain. During this stage there is no relation between fees and performance because this strategy is optimal. In order to analyse this relationship during the other stages of the product life cycle, funds under three years old were omitted from the analysis. Among the remaining funds, those with the highest fees are found to present a higher gross return than the low-fee funds, although the difference is not statistically significant. Nevertheless, in terms of net returns, low-fee funds are observed to stochastically dominate high-fee funds for any risk-averse investor. These findings hold for any managerial skill level or segmentation by the mutual fund family type.

Spanish mutual fund fees and less sophisticated investors: examination and ethical implications

Some mutual funds not only apply the usual asset management and custodial fees, but also front loads and redemption fees as a kind of ‘toll charge’ payable on entering and/or leaving the fund. The aim of this work is to examine the implications of the different loads and fees applied to mutual fund investors in the Spanish market. The results show that there is a relationship between the various charges and fees. The fact that load fund companies charge higher management and custody fees proves the potential of the fund companies to impose higher fees on a segment of the clientele. The investors in load funds, which tend to be large in number of shareholders and belonging to banks and savings banks, are small investors who show a low cost sensitivity. A lower level of financial sophistication may be the reason for the apparent lower price awareness. The problem is that the investors in load funds are not financially compensated for the extra cost represented by the front‐load and redemption fees. The only beneficiary seems to be the financial institution itself. On this view, the survival of load funds seems to depend on the lack of financial sophistication of their clientele, combined with market inefficiencies. It is worth asking about the ethics of a situation of market segmentation that allows managing institutions to benefit from the segment of the least sophisticated investors.