Rogér Otten

European Mutual Fund Performance

This paper presents an overview of the European mutual fund industry and investigates mutual fund performance using a survivorship bias controlled sample of 506 funds from the five most important mutual fund countries. The latter is done using the Carhart (1997) 4‐factor asset‐pricing model. In addition we investigate whether European fund managers exhibit ‘hot hands’, persistence in performance. Finally the influence of fund characteristics on risk‐adjusted performance is considered. Our overall results suggest that European mutual funds, and especially small cap funds are able to add value, as indicated by their positive after cost alphas. If we add back management fees, four out of five countries exhibit significant out‐performance at an aggregate level. Finally, we detect strong persistence in mean returns for funds investing in the UK. Our results deviate from most US studies that argue mutual funds under‐perform the market by the amount of expenses they charge.

New Zealand Mutual Funds: Measuring Performance and Persistence in Performance

The present study investigates the performance of New Zealand mutual funds using a survivorship-bias controlled sample of 143 funds for the period of 1990–2003. Our overall results suggest that New Zealand mutual funds have not been able to provide out-performance. Alphas for equity funds, both domestic and international, are insignificantly different from zero, whereas balanced funds underperform significantly. There is no evidence of timing abilities by the fund managers. In the short term, significant evidence of return persistence for all funds is observed. This persistence, however, is driven by ‘icy hands’ rather than ‘hot hands’. Finally, we find the risk-adjusted performance for equity funds to be positively related to fund size and expense ratio and negatively related to load charges.

The Performance of Local versus Foreign Mutual Fund Managers

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.

Tournaments in the UK mutual fund industry

Purpose - The purpose of this paper is to examine the tournament hypothesis in the UK mutual fund market. Based on a previous US study, fund managers were expected to alter risk-taking behaviour in response to their performance relative to competing fund managers. Design/methodology/approach - Based on an earlier methodology, contingency tables were used to examine the risk-taking behaviour of fund managers after an interim performance period. The sample consists of 422 UK equity mutual funds with monthly data from 1989 to 2003. To avoid survivorship bias, funds that did not survive the entire sample period were also included. This leads to a total of 3,617 observations. Findings - The main conclusions are two-fold. First, using the entire 1989-2003 sample period no consistent evidence for tournament behaviour is found. This is robust to the effects of survivorship bias and window dressing. Second, splitting the sample period into two sub-periods reveals an interesting pattern. During the first part of the sample period, 1989-1996, significant evidence for tournament behaviour is found. During the second part of the sample period, 1997-2003, significant support for strategic behaviour, as described theoretically by Taylor has been documented. Research limitations/implications - The results suggest that after 1996, managers entered into a strategic game that takes the actions of competing managers into account instead of seeing them as exogenous benchmarks. Originality/value - By studying the UK fund market, the US results can be tested to see if they are sample specific or can be carried over to other countries as well. Furthermore, the sample period includes data after 1996, the year of the first publication on the tournament hypothesis. This enabled investigation in to whether managers adapted their strategies.

New Zealand Equity Fund Performance Appraisal: A Non-parametric Approach

The enormous growth in the number of mutual funds and the volume of investment in them worldwide has led to an increasing demand for techniques to evaluate their performance. Risk measurement and performance evaluation of mutual funds are of vital importance for investors and fund managers alike. The performance of mutual funds has been investigated widely in finance literature, both theoretically and empirically, since the 1970s.

Does Industry Size Matter? Revisiting European Mutual Fund Performance

This paper revisits the performance of European mutual funds using a more recent and extensive survivorship bias free database of 16,055 equity funds over the 1992-2006 period. Earlier evidence by Otten & Bams (2002) pointed to an exceptional position of European mutual funds. In sharp contrast to for instance the United States, the authors documented that European mutual funds were able to add value, based on their positive alphas. Otten & Bams (2002) contributed that ability to the relative small size of the European mutual fund industry compared to the total stock market (around 13% in 1998). By 2005 this size has almost doubled to 25%. The main motivation for our study is to examine whether this had an impact on the ability of European mutual funds to beat the market. Our main results are four-fold. First, we indeed find that European mutual funds deliver significantly negative 4-factor Carhart alpha’s during this more recent period. The larger current size of the European mutual fund industry makes it more difficult for managers to add value. These results are now more in line with earlier results for US funds. Second, passive funds perform even worse than active funds, leaving us with a puzzle. It might be that passive funds are not pure indextrackers but active funds in disguise. Third, adding back TER’s and loads make most alphas insignificantly different from zero. Which means that European fund managers are able to follow the market but charge investors too much for this. Fourth, we find strong persistence in performance in all investigated countries over both 6 and 12 month holding periods.