UK Funds Research Articles

Do ESG fund managers pump and dump the stocks in their portfolios? European evidence

We investigate portfolio pumping around quarter-ends by ESG equity mutual funds domiciled in the largest European markets in sustainable investments, i.e., the UK, France and Germany, for the period from January 2010 to December 2022. We find strong evidence that the UK funds inflate quarter-end returns, with price spikes being stronger at year-ends; nevertheless, the magnitude of price inflation is less than that of their conventional counterparts. On the contrary, results indicate that German and French funds do not engage in portfolio pumping. The COVID-19 pandemic strengthened the propensity of fund managers to cause a profound artificial enhancement to the performance of the investment portfolio. Further analysis shows that portfolio pumping is more prominent among the worst-performing funds, funds that charge investors with lower fees and achieve a poor ESG rating. However, managers that pump fund returns do not attract significantly more flows. Our results have produced valuable insights for regulators and investors participating in ESG markets, highlighting the necessity for a rigorous surveillance of the UK ESG equity market.

UK funds academic research into batteries

UK funds academic research into batteries

Innovate UK funds eBike

Innovate UK funds eBike

Survivorship bias and comparability of UK open-ended fund databases

In this paper, we compare returns contained in two widely used databases of UK unit trusts: Morningstar and S&P Micropal. Considering funds for which both sources have data, differences in returns between the databases are considerable and often of sufficient magnitude that they should be of significant concern to researchers. Such data inconsistencies frequently lead to material differences in performance measurement results. We believe that the observed differences raise serious issues with regard to the comparability of results and conclusions of performance studies of UK funds that use different data sets.

Socially responsible: Are they profitable?

This study provides the evidence of the performance of SRI funds in the UK and in France both before and during the financial crisis. We find that in the pre-crisis (2004-2007) period all French and UK funds outperformed the market. According to the modified Sharpe ratio, French and UK funds also outperformed during the crisis period (2007-2009) when compared with relative market benchmarks. This result is not confirmed by the Jensen alpha or the Treynor ratio, but these instruments did not indicate significant underperformance. Overall, our results show that while there is no significant difference in financial performance between SRI funds and non-SRI funds.

The Performance of European Socially Responsible Fixed-Income Funds

Evidence to date on the performance of Socially Responsible Investments (SRI) has almost exclusively been conducted within equity markets. We provide new evidence on the potential of SRI for other asset classes, by assessing the performance of SRI fixed-income funds. This is the first comprehensive investigation on the performance of European SRI bond and balanced funds, domiciled in the main European markets (France, Germany and the UK), compared to characteristics-matched conventional funds.Our results, based on a conditional multi-factor model with time-varying alphas and betas, show that in most cases European SRI balanced funds exhibit no statistically significant differences in performance in relation to conventional funds, both during the overall sample period as well as during recession and expansion periods separately. With regard to SRI bond funds, empirical evidence is mixed. French SRI bond funds match the performance of their conventional peers, German funds slightly outperform and UK funds significantly underperform conventional funds. Furthermore, during expansion periods, funds from the Euro-Area countries significantly outperform their conventional peers, whereas during recessions they are able to perform at least as well as conventional funds. These results mean that SRI funds in the fixed-income area seem to provide additional protection to investors in market downturns.

Multi-asset class mutual funds: Can they time the market? Evidence from the US, UK and Canada

The importance of asset allocation decisions in wealth management is well established. However, given its importance it is perhaps surprising that so little attention has been paid to the question of whether professional fund managers are skilful at timing market movement across asset classes over time. The timing literature has tended to concentrate on the timing skill of single asset class funds. Using data on US, UK and Canadian multi-asset class funds, we apply two alternative methodologies to identify the asset class timing abilities of managers. Overall, whether we apply a returns-based method or a holdings-based testing approach, we find evidence of only a tiny minority of funds with asset class timing ability.

Keith Blundy.

The non-profit Cancer Research UK (CRUK) funds over £300 million worth of cancer research each year and, with the help of its development and commercialization arm Cancer Research Technology (CRT), has moved more than 30 partnered agents into preclinical and clinical development. Having established a small-molecule track record, CRUK now needs to build up more biologic know-how, says CRT Chief Executive Officer Keith Blundy. To this end, CRUK and AstraZeneca's antibody subsidiary, MedImmune, agreed in September to launch the joint CRUK-MEDI Alliance Laboratory. This fully collaborative and integrated partnership is a first of its kind, Blundy tells Asher Mullard.

Noise-trading, costly arbitrage, and asset prices: Evidence from US closed-end funds

The behavior of US closed-end funds is very different from that of UK funds. There is no evidence that the US funds' discounts are constrained by arbitrage barriers, no evidence that higher expenses increase discounts and no evidence that replication risk increases discounts but strong evidence that noise-trader risk is priced. The differences between US and UK funds may be due to the fact that small investors dominate US funds while institutional investors dominate UK funds, or because the sample selection method for the UK funds chooses only funds that are relatively easy to arbitrage.

Mutual Fund Performance: Measurement and Evidence1

The paper provides a critical review of empirical findings on the performance of mutual funds, mainly for the US and UK. Ex‐post, there are around 0‐5% of top performing UK and US equity mutual funds with truly positive‐alpha performance (after fees) and around 20% of funds that have truly poor alpha performance, with about 75% of active funds which are effectively zero‐alpha funds. Key drivers of relative performance are, load fees, expenses and turnover. There is little evidence of successful market timing. Evidence suggests past winner funds persist, when rebalancing is frequent (i.e., less than one year) and when using sophisticated sorting rules (e.g., Bayesian approaches) ‐ but transactions costs (load and advisory fees) imply that economic gains to investors from winner funds may be marginal. The US evidence clearly supports the view that past loser funds remain losers. Broadly speaking results for bond mutual funds are similar to those for equity funds. Sensible advice for most investors would be to hold low cost index funds and avoid holding past ‘active’ loser funds. Only sophisticated investors should pursue an active ex‐ante investment strategy of trying to pick winners ‐ and then with much caution.

Putting Sustainable Investing into Practice: A Governance Framework for Pension Funds

This article presents a framework intended to provide pension funds with practical guidance for the successful implementation of a sustainable investing strategy. The framework is developed with respect to the UK and US pension funds (as these share certain common legal characteristics) and focuses on the changes that pension funds adopting such a strategy should make to their investment strategies and governance (particularly through the formulation and articulation of clear investment mission and strong investment beliefs). The article proceeds with a review of socially responsible investment (SRI) and more recent responsible investment (RI) literature, in the context of growing public awareness (but not necessarily understanding) of the concept of sustainability (“Literature review of SRI field: SRI, RI and sustainable investing” section). It then examines the literature on pension fund governance, arguing the need for more detailed practical guidance for funds moving towards sustainable investing, especially for those implementing a sustainable investing strategy (“Anglo-American pension fund governance” section). It presents the framework for the practical implementation of sustainable investing in the “Sustainable investing framework” section. Finally, we review the relevant Anglo-American legal backdrop, outlining how pension funds adopting our framework should approach their fiduciary obligations, and then discussing potential regulatory enablers of sustainable investment (“Legal context: barriers to and enablers of sustainable investing” section).

The Timing Performance of Local Versus Foreign Mutual Fund Managers: An Analysis of Market, Volatility and Joint Timing

I examine the market, volatility and joint timing performance of US equity funds (locals) versus UK equity funds (foreigners) invested in the US equity market. I use daily mutual fund returns and hypothesise that foreign fund managers are more specialised in timing and thus better interpret the macroeconomic factors than local fund managers. Using parametric estimates, I find evidence that UK funds have a statistically better timing ability than US funds. I use a nonparametric model to show that UK funds have better quality of timing information to forecast US market movements while US funds react more aggressively to timing information. Moreover UK fund managers have a less aggressive investment style by timing the volatility pro-cyclically contrary to US fund managers that time the volatility counter-cyclically.

Do pension funds managers display stock-picking and market timing ability? Evidence from the United Kingdom and Spain

ABSTRACTThis paper examines the stock-picking and market timing abilities of pension funds managers in the UK and Spanish markets, analysing their use of privileged information to implement management strategies and considering the possible effects of portfolio size. We take the analysis further by correcting benchmark omission bias. Our results reveal some degree of stock-picking ability, but perverse market timing ability, as well as incorrect use of privileged information in timing strategies. These findings are consistent with the portfolio size effect, although they are influenced by benchmark omission bias. The results obtained are very similar for both UK and Spanish pensions funds managers.

Myofibroblastoma of the male breast: a rare entity of increasing frequency that can be diagnosed on needle core biopsy

Correspondence ackn owledgements British Lung Foundation UK and Lung Pathology Departmental Funds for funding. M Tsoumakidou J Zhu Z Wang A Thorley 1 S Kemp 1 T Tetley 1 P K Jeffery Lung Pathology, Department of Gene Therapy, and Lung Cell Biology, Section of Airways Disease, National Heart & Lung Institute, Imperial College London, London, UK 1. Vermaelen K, Pauwels R. Pulmonary dendritic cells. Am. J. Respir. Crit. Care Med. 2005; 172; 530–551. 2. Demedts I, Brusselle G, Vermaelen K et al. Identification and characterization of human pulmonary dendritic cells. Am. J. Respir. Cell Mol. Biol. 2005; 32; 177–184. 3. Tsoumakidou M, Tzanakis N, Papadaki HA et al. Isolation of myeloid and plasmacytoid dendritic cells from human broncho- alveolar lavage fluid. Immunol. Cell Biol. 2006; 84; 267–273. 4. Todate A, Chida K, Suda T et al. Increased numbers of dendritic cells in the bronchiolar tissues of diffuse panbronchiolitis. Am. J. Respir. Crit. Care Med. 2000; 162; 148–153. 5. Witherden IR, Vanden Bon EJ, Goldstraw P et al. Primary human alveolar type II epithelial cell chemokine release: effects of cigarette smoke and neutrophil elastase. Am. J. Respir. Cell Mol. Biol. 2004; fixation. The metal suture is later trimmed off, allowing perpendicular slices to be made across the lung ⁄ pleural tissue, permitting detailed analysis. One issue not covered in any detail in the review is that of occupational dust-related pathology and emphysema. Assessment of emphysema is particularly important at autopsy in this regard, as it is used to substantiate ⁄ refute medicolegal claims by relatives of the deceased. It is vital to try to inflate postmortem lung tissue (in a similar manner) for ideal quantification of disease and, even if whole mount lung tissue sections are not available, small, adequately inflated lung samples can produce significant information that can be tested in the legal setting. In addition, it is worth considering other occupa- tional disease, particularly in relation to metal fumes. Cadmium exposure (for example) can produce signifi- cant emphysematous change many years after expo- sure. 2 Retention of some lung tissue for mass spectroscopy can be particularly useful if one is considering metal or other chemical-related disease. Finally, whilst I would entirely concur with the pathological approach to classification given in the review, I would suggest that any analysis of lung parenchyma must be cross-correlated against respira- tory function tests and other clinical information. Of particular value is computerized tomography ⁄ magnetic resonance imaging in terms of extrapolation of small biopsy ⁄ autopsy sample histology in order to derive full appreciation of overall pulmonary pathology status. 3 S K Suvarna Advances in the pathology of COPD Department of Histopathology, Northern General Hospital, Sheffield, UK DOI: 10.1111/j.1365-2559.2007.02816.x Sir: I read with great interest the very detailed and helpful review on emphysema, 1 and agree this is the gold standard approach to assessment of lung tissue for chronic obstructive pulmonary disease (COPD). Regret- tably, autopsy and tissue retention issues in the UK have led to problems with examining lung parenchyma in this format and in most cases only small samples of tissue can be retained for COPD assessment. For surgical samples, often submitted as thoraco- scopic (video-assisted thorascopic surgery) samples with wire suture material at the margins, I would recommend inflation of these samples upon receipt in the laboratory by injecting formalin (by syringe ⁄ needle) into the lung parenchyma through the pleura, until the sample looks adequately inflated for ideal 1. Wright JL, Churg A. Advances in the pathology of COPD. Histopathology 2006; 49; 1–9. 2. Churg A, Colby TV. Diseases caused by metals and related com- pounds. In Churg A, Green FHY eds. Pathology of occupational lung disease, 2nd edn, Baltimore: Williams and Wilkins, 1998; 77–128. 3. Muller NL, Fraser RS, Lee KS, Jokhoh T. Diseases of the lung. Radiological and pathological correlations. Philadelphia: Lippincott Williams & Wilkins, 2003; 239–254. Myofibroblastoma of the male breast: a rare entity of increasing frequency that can be diagnosed on needle core biopsy DOI: 10.1111/j.1365-2559.2007.02808.x Sir: Myofibroblastoma is a rare benign mesenchymal tumour that was first described by Wargotz et al. in 2007 The Authors. Journal compilation 2007 Blackwell Publishing Ltd, Histopathology, 51, 552–580.

The Performance of Local versus Foreign Mutual Fund Managers

Abstract In this paper we examine the performance of US equity funds (locals) versus UK equity funds (foreigners) also investing in the US equity market. Based on informational disadvantages one would expect the UK funds to under‐perform the US funds, especially in the research‐intensive small company market. After controlling for tax treatment, fund objectives, investment style and time‐variation in betas, we do not find evidence for this. In the small company segment we even find a slight out‐performance for UK funds compared to US funds. Finally we observe a home bias in the UK portfolios, which is partly attributable to UK funds investing in cross‐listed stocks in the USA.

The Price of Ethics: Evidence from Socially Responsible Mutual Funds

This paper estimates the price of ethics by studying the risk-return relation in socially responsible investment (SRI) funds. Consistent with investors paying a price for ethics, SRI funds in many European and Asia-Pacific countries strongly underperform domestic benchmark portfolios by about 5% per annum, although UK and US SRI funds do not significantly underperform their benchmarks. The underperformance of SRI funds does not seem to be driven by the loadings on an ethical risk factor. SRI funds do not suffer a cost of reduced selectivity nor do SRI funds managers time the market. There is mixed evidence of a smart money effect: SRI investors are unable to identify the funds that will outperform in the future, whereas they show some fund-selection ability in identifying ethical funds that will perform poorly. The screening activities of SRI funds have a significant impact on funds’ riskadjusted returns and loadings on risk factors: corporate governance and social screens generate better risk-adjusted returns whereas other screens (e.g. environmental ones) yield significantly lower returns.

Performance and Performance Persistence of ‘Ethical’ Unit Trusts in the UK

Abstract: We examine performance, and persistence in the performance, of UK ‘ethical’ or SRI funds and find that performance appears to be time‐varying, showing that conclusions on performance itself are influenced by whether a static or time varying model is employed. Given evidence that many UK funds which claim to be international in nature may exhibit home bias in their portfolio allocations, we also propose a new measure for performance of international funds that allows for this and show that such recognition has important implications for the conclusions drawn with respect to these funds. We find evidence that supports persistence in performance, particularly at longer time horizons. There is some evidence that for domestic funds, past ‘winning’ SRI funds outperform ‘losing’ SRI funds to a greater extent than their control portfolio counterparts.

Eppur si muove — Risk and alternative asset classes for pension funds

The author draws attention to different investment practices between pension funds in North America and those in Europe. In particular, he points out the very different ways in which so-called ‘alternative’ asset classes are viewed; for example, in the UK, private equity and hedge funds combined make up only about 1 per cent of pension plan assets, whereas in North America some pension plans have allocations just to private equity of anything up to about 25 per cent. The paper examines the example of the Yale Model in North America and suggests that it could and should be adopted by pension funds in Europe, as it is being progressively by their counterparts across the Atlantic. The author deals in turn with risk, correlation and liquidity, suggesting that the traditional risk model is no longer appropriate for modern investment approaches, and perhaps was never really valid at all. He also contends that the existing view of liquidity and solvency is mistaken, and that pension funds actually require far less liquidity than they imagine.

Evidence Contrary to the Disposition Effect Amongst UK Managed Funds

We investigate the prevalence of the disposition effect (DE) amongst UK managed fund by using the Citywatch database of their daily holding positions in all equity stocks over the period September 2001 through to September 2004. In contrast to Odean's (1998) finding for clients of a discount brokerage house, we find that at once stock's capitalisation is taken into account UK managed funds tend to sell losers rather than winners. The most influential variable shaping funds' propensity to sell a stock is its market capitalisation, a proxy for liquidity. Other significant variables positively correlated with the sell decision include market-to-book ratio and recent performance of the stock. UK funds tend to sell stocks that have had a recent reduction in price. We conclude UK managed funds do not exhibit the behavioural bias associated with the DE.

International evidence on ethical mutual fund performance and investment style

Using an international database containing 103 German, UK and US ethical mutual funds we review and extend previous research on ethical mutual fund performance. By applying a Carhart multi-factor model [Carhart, Journal of Finance 57 (1997) 57] we overcome the benchmark problem most prior ethical studies suffered from. After controlling for investment style, we find no evidence of significant differences in risk-adjusted returns between ethical and conventional funds for the 1990–2001 period. Our results also suggest that ethical mutual funds underwent a catching up phase, before delivering financial returns similar to those of conventional mutual funds. Finally, our performance estimates are robust to the inclusion of ethical indexes, which, surprisingly, are not incrementally capable of explaining ethical mutual fund return variation.