Srinidhi Kanuri

Evaluating the Performance and Diversification Benefits of Emerging-Market Exchange-Traded Funds

This study evaluates the performance and diversification benefits for U.S. investors of emerging-market exchange-traded funds (ETFs) since their inception in January 2003 through June 2015 by comparing their absolute and risk-adjusted performance with the iShares Core S&P 500 ETF (IVV). The authors find that the emerging-market ETF portfolio has very low correlations with IVV during the period of the study. Emerging-market ETF portfolios delivered better absolute performance (returns and wealth) but also had much higher risk (standard deviation of returns). However, the risk-adjusted performance (Sharpe and Omega ratios) of IVV was better than that of the emerging-market ETF portfolio. They also look at the effect of adding some emerging-market ETFs to IVV during the period of study. The authors find that adding some emerging-market ETFs to IVV leads to higher absolute returns, better risk-adjusted performance (Sharpe and Omega ratios), higher cumulative returns, and increased wealth for U.S. investors. Results are statistically significant at 1% in all cases. Therefore, U.S. investors should add some emerging-market ETFs to their domestic allocation based on their risk tolerance for better performance (absolute and risk-adjusted).

Is Target-Date Mutual Fund Underperformance Rational?

This article investigates the performance of target date mutual funds (TDMFs) relative to several passive indexes by using widely accepted mutual fund performance measures—Sharpe, Sortino, and Omega ratios; FF-3; and FF-6—and find that TDMF performance is negative and significant in nearly all performance measures. The authors also find that TDMFs provide other benefits for investors searching for a choice between active and passive investing. They speculate that several investor biases may explain the paradox of the popularity and underperformance of TDMFs. The results of this article are very important for choice architects and individual investors responsible for retirement plan decisions in that TDMFs fill the current void in retirement plan offerings and will most likely continue to rise in popularity. This article also reveals the need to develop measurement tools designed specifically to determine the performance of TDMFs.

Performance of Female CEOs

The authors examine the performance of companies led by women from January 1996 to December 2014. The results show that companies headed by women outperformed the U.S. market, as proxied by the S&P 1500 and Russell 3000 indexes. Firms with female CEOs have higher average and median monthly returns, higher risk (standard deviation of monthly returns), and higher risk-adjusted performance (Sharpe, Sortino, and Omega ratios). Female-led companies also have significantly positive alphas with both the Carhart four-factor model and the Fama–French five-factor model when they form equally weighted and value-weighted portfolios of these firms. These results indicate that firms led by women have created significant value for their investors during the period of our study.

Performance of Dividend Exchange-Traded Funds during Bull and Bear Markets

This study investigates the performance of dividend exchange-traded funds (ETFs) during both bull and bear markets. The authors compare their performance to a proxy for the U.S. market as measured by the S&P 500 ETF (IVV). Using data from Morningstar Direct, they construct equally weighted portfolios of dividend ETFs and compute their absolute and risk-adjusted returns for the period 2004 through 2014. The study finds that dividend ETFs are much more expensive than IVV and are highly correlated with IVV. Over the entire period of study, the performance of the dividend ETF portfolio was marginally better than that of IVV; the portfolio marginally outperformed IVV during two bull markets (January 2004 to September 2007 and April 2009 to December 2014), but it also marginally underperformed IVV during the most recent bear market (October 2007 to March 2009), which means that dividend ETFs are more volatile than IVV. The sample period is limited because the first dividend ETF was created in late 2003. Investors in dividend ETFs, who were expecting to receive superior returns during volatile markets, would not have achieved the results that they anticipated.

An Empirical Examination of the Performance of Commodity Mutual Funds

The use of commodities to hedge inflation risk and diversify portfolios is generally thought to be an important consideration for portfolio management. Direct investment in commodities or commodity derivatives requires that investors have significant assets and/or expertise in these commodities or their respective derivatives markets. As an alternative to direct investment, investors in recent years have increasingly resorted to the use of commodity-based mutual funds. In this article we evaluate the performance, persistence, market timing, and selectivity of four categories of mutual funds whose returns are based on commodity prices. Our period of analysis begins with each fund’s inception and ends in December of 2012. Our results indicate that these funds have not been able to create positive alphas for their investors, have negative or insignificant performance persistence, and have no market timing ability. Some of the categories of funds, however, do exhibit some selectivity. We did find that when these commodity-based funds’ performance was evaluated during specific time periods of market downturns (e.g., the 2000 stock market downturn and the financial crisis that began in late 2007), their performance was significantly positive, which indicates that these funds provide a good hedge during bear markets/financial crises.

Sustainable competitive advantage and stock performance: the case for wide moat stocks

ABSTRACT ‘In business, I look for economic castles protected by unbreachable “Moats”’. Warren Buffett Companies that have sustainable competitive advantages should be able to create a barrier (Moat) to prevent or lessen competition from other firms. The wider the Moat the greater the barrier and the more secure the company’s profitability. Using the Morningstar classification of ‘Wide Moat’ stocks, we construct annually rebalanced equal- and value-weighted portfolios to analyse their performance in order to determine if they deliver superior performance relative to standard benchmark portfolios. The period for our analysis extends from June 2002 through May 2014. We find that the ‘Wide Moat’ portfolios outperform both the S&P 500 and Russell 3000 indices generating higher average monthly and annualized returns, Sharpe Ratio, Sortino Ratio, Treynor Ratio, Omega Ratio, Upside Potential Ratio, M2, M2 Alpha, and cumulative returns. When we compute alpha using Carhart four-factor and Fama–French five-factor models, we find that ‘Wide Moat’ portfolios had significantly positive risk-adjusted alphas with both the models. ‘Wide Moat’ portfolios also lost less value during the 2007–2009 financial crisis compared to both S&P 500 and Russell 3000. In conclusion, we find that ‘Wide Moat’ stocks have created significant value for their investors over the course of our study.