BFM Mutual Funds Project - Papers & Reports Reading Summary
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
BFM Mutual Funds Project
Papers & Reports Reading Summary
BOURBON FINANCIAL MANAGEMENT
April 6, 2012
BFM Mutual Funds Project
Manage Factors
Antecedent Analysis and Strategy Counsel: 2001-2008
Data source: 12/2002-12/2008, US federal reserve bank balance sheet
Summary: this essay is to analyze market after 2008 credit crisis by counseling four
dominant considerations: valuation, generational risk aversion, monetary policy and
fiscal policy.
Risk aversion: could be incorporated into our valuation model.
Tax cut: the expiration of tax cut with the increase of equity price
Stable inflation:
“In the interim, risky assets are likely to find short-term support in stable inflation and
expectations of monetary stimulus and future inflation.” That is, stable inflation is
positive to risky asset in short term.
Some Like It Hot:2000-2010
Either passive management or active management is not significantly suitable for one
special type of market. A core-satellite structure that combines passive and very active
mandates is positive to funds return.
How Active Is Your Fund Manager? A New Measure That Predicts Performance:
1979-2004
Active management should be measured in two dimensions: tracking error and Active
Share. High Active share is positive to equity mutual funds return; but tracking error
does not predict funds return
PS summary:
Small funds are more active, while a significant fraction of large funds are closet
indexers. But, r, for funds with large-cap benchmarks this pattern emerges only
gradually after $1bn in assets - before that, fund size does not matter much for the
fraction of active positions in the portfolio.
Funds with the highest Active Share significantly outperform their benchmarks
both before and after expenses, while funds with the lowest Active Share
underperform after expenses. In contrast, active management as measured by tracking
error does not predict higher returns .if anything, using this traditional measure makes
active funds seem to perform worse.
BFM: How to Pick Better Mutual Funds?
1BFM Mutual Funds Project
Both qualitative and quantitative factors are important to funds return. Manager’s
ownership is positive to funds return. Constant monitoring and reviewing on
managers is positive to funds return.
Publish date: October, 2011
Standard & Poor's Mutual Fund Performance Persistence Scorecard: 2002-2006
Expense ratio is positively correlated with funds performance. Manager tenure is
negatively correlated with funds performance.
Luck versus Skill in Active Mutual Funds: 1975-2006
http://www.slideshare.net/bfmresearch/luck-vsskill-famafrench
The proportion of skilled managers decreases over time, specifically from 1990 to
2006. The fundamental reason for the decline in skill is the movement of skilled
managers to the hedge funds.
Portfolio Manager Ownership and Fund Performance: 2002-2005
http://www.slideshare.net/bfmresearch/ownership-and-fund-performance-evans
Publish date: August 10, 2006
Data source: end at 2004
Sum:
fund manager ownership is endogenous and explore the determinants of fund manager
ownership. Ownership is higher in funds with better past performance, funds that are
smaller, part of a smaller family, and that charge lower up-front loads. It is also higher
in funds with higher board member compensation, in equity funds, and in funds
managed by the same set of managers for a longer period of time.
Mutual fund performance and manager style: 1965-1998
Management style is not significantly related to funds performance. The abnormal
performance of the best performing growth funds is not sustainable beyond one year.
Publish date: May 2000
Agree
Do Hot Hands Warm the Mutual Fund Investor? The Myth of Performance
Persistence Phenomenon: 1944-2000
Past superior performance does not predict future performance. Test procedures
employed in persistence studies are subject to many biases that may have implications
on inferences about performance persistence.
2BFM Mutual Funds Project
The Selection and Termination of Investment Management Firms by Plan
Sponsors: 1994-2003
http://www.slideshare.net/bfmresearch/selection-termination-goyalwahalsk
Plan sponsors hire investment managers after superior performance but on average,
post-hiring excess returns are zero. Post-firing excess returns are frequently positive
and sometimes statistically significant.
Prior Performance and Risk: 1962-2006
When fund managers have longer tenures, they tend to raise the standard deviation of
tracking errors instead of standard deviation of returns when the performance goes
down.
Re-thinking the Active/Passive Debate_ 1980-2008_ Active/Passive Management
For investors who intend to allocate to a specific asset class for a relatively short
period of time, a passive approach is probably prudent. However, we believe longer
periods of time favor an active approach.
Confidence Analysis_1990-2008
It measures the probability of a manager’s return based on “skill” rather than “luck”
based on persistence of Alpha.
Investing In Talents
For hedge fund, the managers who are from higher SAT (scholastic aptitude test)
undergraduate institution tend to have higher raw and risk-adjusted returns, more
inflows and take fewer risks. Unlike mutual funds, hedge fund flows do not have a
significant negative impact on future performance.
Can Mutual Fund Managers Pick Stocks? Evidence From Their Trades Prior To
Earnings Announcements
We use subsequent earnings return of stocks that fund hold and trade to measure the
funds managers’ picking stocks skill. The result turns out that those stocks the
managers buy outperforms those they sell.
Dose Skin In The Game Matter- Director Incentives And Governance In The
Mutual Fund Industry
3BFM Mutual Funds Project
www.slideshare.net/bfmresearch/does-skiningamematter-cremers
Director ownership states are important for fund performance (positive relationship).
Higher ownership, lower fees. But private information the directors have don’t effect
the performance of the fund much.
Publish date: Dec. 2009
Mutual Fund Managers: Dose Longevity Imply Expertise
Summary: Funds whose managers’ have at least ten years tenure do not generate
significantly higher excess returns than funds with less experienced managers. The
excess returns of the best managers are not greater than those of their less experienced
colleagues. Regardless of tenure, managers producing positive risk adjusted returns
for three years are not likely to repeat their performance in subsequent periods. Our
results provide further evidence that tenure should not be a factor in selecting mutual
funds. (JEL G20)
Publish date: JOURNAL OF ECONOMICS AND FINANCE, summer 2003
Data source: the performance of 1,042 mutual funds from 1986 to 1995
Object: refer to global market as Canada, china and euro but focus on US
Because of the influence of credit crisis and some form of risk aversion that
committees will likely codify in the future, risk aversion could be incorporated into
our valuation model.
LucikVs Skill In The Cross Section Of Mutual Fund Returns
High costs of active management generate underperform return.
Smart Fund Managers, Stupit Money
We develop a model of mutual fund manager investment decisions near the end of
quarters. We show that when investors reward better performing funds with higher
cash flows, near quarter-ends a mutual fund manager has an incentive to distort new
investment toward stocks in which his fund holds a large existing position. The short-
term price impact of these trades increase the fund’s reported returns. Higher returns
are rewarded by greater subsequent fund inflows which, in turn, allow for more
investment distortion the next quarter.
Management TentureAnd Risk-Adjusted Performance Of Mutual Fund
Manager tenure does influence the total return and risk-adjusted return. The longest
tenure managers provide better performance and charge lower fees.
4BFM Mutual Funds Project
Prior Performance And Risk Taking Of Mutual Fund Managers: A Dynamic
Bayesian Network Approach
we find that prior performance has a positive impact on the choice of risk level, i.e.,
successful fund managers take on more risk in the following calendar year. In
particular, they increase volatility, beta, and tracking error, and assign a higher
proportion of their portfolio to value stocks, small firms, and momentum stocks.
Overall, poor-performing fund managers switch to passive strategies.
An Examination Of Performance Of The Trades And Stocks Holding Of Fund
Managers: Future Evidence
I find the stocks held by fund managers realize abnormal returns consistent with some
stock selection ability across fund managers. Examining the performance of their
individual trades, I find that the stocks they buy realize abnormal returns whereas for
sell trades I find no evidence of abnormal returns. Overall, the results suggest fund
managers have the ability to select stocks that realize positive abnormal returns thus
providing out-of-sample support for similar recent findings for U.S. mutual funds
Portfolio Performance And Herding: Study Of Mutual Fund Behavior
The extent of mutual fund purchase stock depends on the past performance and
tendency to exhibit “herding” behavior.
Performance Characteristics OfIddividually Managed Vs Team Managed
Mutual Fund
Database: 1992-2003
Publish date: spring 2008
We also find evidence of differences in turnover between the two groups. Team funds
exhibit lower turnover in disparate information settings, but higher turnover when
information is more focused or complete. Finally, we find evidence that team funds
have lower expenses and loads than individually-managed funds by nearly 50 basis
points per year, and that teams attract fund flows at a significantly greater rate than do
individually managed mutual funds.
Portfolio Manager Ownership And Mutual Fund Performance
Fund ownership levels are diverse and, in many instances, quite large. Mutual fund
returns are increasing in the level of managerial investment, consistent with personal
ownership realigning decision-maker and shareholder interests. Also consistent with
5BFM Mutual Funds Project
the reduction of agency costs, this paper indicates that managerial ownership is
inversely related to fund turnover However, there is no evidence of an association
between managerial ownership and a mutual fiind s tax burden.
(agree)
Dose Prior Performance Affect A Mutual Fund Choice Of Risk Thoery And
Further Empirical Evidence
This paper models a manager's portfolio choice for compensation rules that can be
either a concave, linear, or convex function of the fund's performance relative to that
of a benchmark. For particular compensation structures, a manager increases the
fund's "tracking error" volatility as its relative performance declines. However,
declining performance does not necessarily lead the manager to raise the volatility of
the fund's return.
The Myth of Diversification: risk factors VS. Asset classes
http://www.slideshare.net/bfmresearch/myth-of-diversification
Writers: Sebastien Page, CFA
Findings and Results: Asset class diversification does not equate to risk diversification.
New normal asset allocation approach: focus on risk factor diversification, and seek to
explicitly hedge “fat tail” risk.
Agree
Top fund underperformed 3years
Findings and Results: top quartile large cap equity managers’ performance fall into
the bottom half, quartile or decile for at least one 3-year period.
Build a durable portfolio. Do not choose mutual fund only based on its recent years’
performance.
Returns-Based Style Analysis: An Excel-Based_Classroom--2002-2007
Publish date: 2010
This article doesn’t refer to any factor.
Fund Pick Muhlenkamp Money Manager
Publish date: July 2001
No data source.
Summary: this article is about the relationship between investors and managers.
In summary, a successful investment manager needs a consistent investment
6BFM Mutual Funds Project
philosophy, a sense of perspective, and the confidence and discipline to carry it
through. The investor, in turn, must understand and be comfortable with the
manager’s philosophy. He must know why it works, and when it won’t work, so he
too has the confidence to see it through. A wise investor once said that in the money
management business the only surprises are bad surprises. But the problem is all the
element is hard to be quantization.
Is Alpha Dead_Research Note
This article is to prove that alpha should not be used in performance evaluation, not
about risk aversion.
Publish date: 2011
No direct data source.
Due Dilligence_2010
Summary: Change from old 4P to new 4P
Old 4 P’s: people, process/philosophy, portfolios, and performance
New 4P’s: passion, perspective, purpose, and progress.
Publish date: JUNE 2010
Agree, but this factor is hard to be quantization
Active share and mutual funds performance_SSRN-id1685942_1980-2009
Publish date: December 15, 2010
Summary:
Generally a mutual fund investor shouldn’t pay for active fund management.
However, active managers are not all equal: they differ in how active they are and
what type of active management they practice. This allows us to distinguish different
types of active managers, which turn out to matter a great deal for investment
performance.
There is only a very weak relationship between size and performance
Measure:
Hence, Active Share and tracking error emphasize different aspects of active
management. Active Share is a reasonable proxy for stock selection, whereas tracking
error is a proxy for systematic factor risk.
When selecting mutual funds, they should pick from the two extremes of Active
Share, but not invest in any funds in the middle.
Closet indexers who stay very close to the benchmark index are a particularly
bad deal, as they are almost guaranteed to underperform after fees given the small size
of their active bets.
Performance Emerging Fixed Income Managers: Is Age just a Number_1985-
7BFM Mutual Funds Project
2006
Younger managers outperform during the first five years of existence.
Publish date: 2/11/09
Data source: the number of new core fixed-income and high-yield firms that were
formed and were majority-employee-owned from January 1985 to December 2006.
8BFM Mutual Funds Project
Technical Factors
Absolute values
Quantitative Research: Prospects for a Large Cap Comeback: 1936-2011
Generally large capitalization is a negative factor for investment. The market activity
(ETFs and Hedging) disproportionately benefits small cap. Large cap companies pay
more attention on near-term performance. Increases in shares outstanding are
negatively correlated with the performance of large capitalization stocks.
Weekend Investor: 1989-2009
Summary:
There is no correlation between size and return, and there is no correlation
between active share and fund performance.
Does Fund Size Erode Mutual Fund Performance? The Role of Liquidity and
Organization: 1962-1999
http://www.slideshare.net/bfmresearch/fund-size-liquidity-and-org-chen-hong
Fund size is negatively correlated with fund returns. Fund size matters more in funds
investing in small stocks than those investing in large stocks. Liquidity and
organizational diseconomies explain that why size erodes performance.
Liquidity, Investment Style, and the Relation between Fund Size and Fund
Performance: 1993-2002
Funds size is negatively related to funds performance. This inverse relation is stronger
not only among funds that hold less liquid portfolios, but also among growth and high
turnover funds that tend to have high demands for immediacy.
Transaction-cost Expenditures and the Relative Performance of Mutual Funds:
1984-1991
Both trading costs and turnover are negatively related to fund returns. Direct estimates
of trading costs have more explanatory power for fund returns than turnover.
Do past mutual funds winners repeat_ 2010
Our research suggests that screening for top-quartile funds may be inappropriate.
Screening out bottom
quartile funds may be appropriate, however, since they have a very high probability of
being merged or liquidated. (Past performance, not significant)
9BFM Mutual Funds Project
Investment Allocation Decisions by Institutional Investors data: 1984-2007
By comparing the performance of products with highest inflow and highest outflow
(products from which assets are withdrawn) during the 1 and 3 year periods, inflow
underperformed outflow.
Active Share: Predicting Alpha and Risk_1980-2008_Active Share Strategy
● High active-share managers have outperformed low active-share managers
across a variety of equity categories, particularly US all-cap, global, and international.
● Active share forecasts alpha well in most categories, with the exception of
large-cap growth and small-cap stocks.
● Active share is comparable to projected tracking risk as a tool for forecasting
relative risk.
● High active-share managers experience more significant drawdowns, and may
not be practical for many institutions.
● Diversified high active-share strategies tend to improve alpha while
minimizing drawdowns associated with high active-share managers.
(agree)
Fund Flow Volatilities AndPeformance
There is negative relationship between fund flow volatility and cross sectional
differences in risk-adjusted performance.
Stale Prices And Performance Evaluation Of Mutual Fund
Stale price: an old price of an asset that doesn’t reflect the recent information.
This paper introduces a model that evaluates fund performance while controlling
directly for these biases. Empirical tests of the model show that alpha net of these
biases is on average positive although not significant and about 40 basis points higher
than alpha measured without controlling for the impacts of stale pricing.
Dose Fund Size Erode Mutual Fund Performance? The Role Of Liquidity And
Organization
We first document that fund returns, both before and after fees and expenses, decline
with lagged fund size, even after accounting for various performance benchmarks.
This association is most pronounced among funds that have to invest in small and
illiquid stocks, suggesting that these adverse scale effects are related to liquidity.
10BFM Mutual Funds Project
Controlling for its size, a fund's return does not deteriorate with the size of the family
that it belongs to, indicating that scale need not be bad for performance depending on
how the fund is organized. scale erodes fund performance because of the interaction
of liquidity and organizational diseconomies.
Liquidity, Investment Style, And The Relation Between Fund Size And Fund
Performance
This paper suggests that significant relation between fund size and fund performance.
Further, this inverse relation is stronger among funds that hold less liquid portfolios.
The inverse relation between fund size and fund performance is also more
pronounced among growth and high turnover funds that tend to have high demands
for immediacy. Overall, this paper's findings suggest that liquidity is an important
reason why fund size erodes performance.
On Persistence In Mutual Fund Persistence
Hendricks, Patel and Zeckhauser's 119931 "hot hands" result is mostly driven by the
one-year momentum effect of Jegadeesh and Titman (1993), but individual funds do
not earn higher returns from following the momentum strategy in stocks.
Why mutual fund performance not persist, 1992-2007
Two factors: fund flow and manager changes
Recent winner funds have neither high inflows nor the departure of a skilled fund
manager.
Relative values
The Empirical Law of Active Management: 1980-2010
Publish date: Fall 2010
Data source: since 1980 for 2,798 U.S. mutual funds
Summary:
Skill of a portfolio manager has been declining among U.S. mutual funds while
diversification has been increasing.
the decrease in skill was accompanied by an increase in diversification. Since the
mid-90’s, we also observe an inverse relationship between skill and diversification.
We suggest that the increase in diversification does reflect a decrease in the quality of
the information content of U.S. mutual funds.
Mutual funds with high levels of concentration tend to outperform funds with lower
levels of concentration.(that is diversification is negative to fund’s return)
11BFM Mutual Funds Project
that low diversification funds still exhibited significantly higher skill under both
definitions of the artificial survivorship bias. Hence, the relationship that we observed
between skill and diversification cannot be explained away by survivorship bias.
A function of diversification:
BFM: How to pick up a Mutual fund?(地址有错，我稍后更正)
http://www.slideshare.net/bfmresearch/bfm-newsletter-102011
Taxation on distribution of incomes or capital-gains to shareholders is negative to
funds return. Large and diversified portfolio is positive to funds return
Standard & Poor's Mutual Fund Performance Persistence Scorecard: 2002-2006
Publish date: January 29, 2007
Data source: one year periods Ending December 31, 2006.
Sum:
Manager tenure and expense ratios stand out as key differentiators. Top
performing funds have lower expense ratios and have managers who been at
the helm longer.
It is interesting to note that bottom quartile funds had a much higher probability
of disappearing than any other group. Clearly, fund companies actively cull
from the ranks of their bottom ranking funds as this makes their slate of funds
look better.
The fact that in many cases the repeat rates are higher than random expectations
suggests that past performance should not be dismissed as completely irrelevant.
However, as a practical matter, we believe the commonly used screening for funds
based on top quartiles may be inappropriate
12BFM Mutual Funds Project
Research and recommendations for the serious fund investor: 2005-2010
Expense ratio is negatively related to funds return. Star rating is positively related to
funds return. Expense ratios are the most dependable predictor of performance.
Information Ratio and Sharp Ratio_
It highlights the shortcomings of sharp ratio and information ratio. They only apply to
those investments which has normal expected return distribution, not asymmetric
returns. Moreover, they don’t tell where do the returns come from, skills or luck?
Do Funds With Fewer Holdings Outperform
Averagely, fund portfolios with few holdings do not outperform the S&P 500 index.
Winner portfolio abnormal performance is positively and significantly related to the
turnover ratio and the percentage of the fund’s assets invested in their top 10 most
heavily weighted holdings. On the other hand, Loser portfolio abnormal performance
is positively related to Load and Size.
Fund Selection Based On Fund Characteristics
This paper investigates if investors can predict and choose funds by their
characteristics rather than past performance. Those characteristics are: past
performance, turnover ratio, ability to produce a yearly excess net return of 8%, fund
fees. This strategy increases the alpha of one only use past performance from 0.8% to
1% after adjusting for systematic risks.
Holding Data, Security Returns And The Selection Of Superior Mutual Funds
Selecting mutual funds, the alpha computed from a fud’s holdings and security betas
produces better future alphas than selecting funds using alpha computed from a time-
series regression on fund returns. More frequently the holdings data are available, the
greater the benefits.
Mutual Fund Performance: An Empirical Decomposition Into Stock Picking
Talent, Style, Transaction Costs, Expense
Based on our database, stocks fund holding outperform the market for 1.3% while
their net return underperform the market by 1%, which due to the nonstick holdings
and transaction cost. High-turnover funds beat the vanguard Index 500 funds on a net
return basis.
13BFM Mutual Funds Project
Mutual Fund Performance, Management Behavior, And Investor Costs
For equity funds, trading activity is negatively related to returns. Expense ratios are
not significantly related to returns. Potential capital gains exposure and tax cost ratio
are positively related to return. For fixed income funds, trading activity is positively
related to return. Expense ratios and tax cost ratios are negatively related to returns.
Publish date: 29 December 2003
Agree
A Study Of Monthly Mutual Fund Returns And Performance Evaluation
Techniques
The study finds that the measures generally yield similar inferences when using the
same benchmark and that inference can vary, even from the same measure, when
using different benchmarks. This paper also analyzes the determinants of mutual fund
performance. Tests of fund performance that employ fund characteristics, such as net
asset value, load, expenses, portfolio turnover, and management fee are reported.
These tests surprisingly suggest that turnover is significantly positively related to the
ability of fund managers to earn abnormal returns.
How ImformativeAn Information Ratio For Evaluating Mutual Fund Managers
Based on empirical evidence, we find that the IR is in fact reliable and useful, but has
certain limitations. Overall, our analysis reveals that two dimensions are important to
adequately judge manager performance in a given year: 1) the performance in that
year, and 2) the track record of the fund over the previous three years. The former can
be used to establish a ranking of funds that are then adjusted either upward or
downward by the latter.
We found that four factors influence the quality of the IR: 1) benchmark selection, 2)
data frequency. 3) non-normality of fund returns, and 4) any survivorship bias
inherent in the sample used to estimate the threshold values.
Scoring For Returns1993-1996
The author created a F-Score which is calculated from 8 indicators embedding
positive relationship with higher-than-average future returns—
Factors: EP—Positive, BP—Positive
Active Management Mostly Efficient Markets_FAJ
Summary:
14BFM Mutual Funds Project
The average active manager does not outperform but that a significant minority
of active managers do add value. Investors may be able to identify superior active
managers (SAMs) in advance by using public information.
In general, institutional funds (e.g., separate accounts, pooled trust funds) to
outperform retail funds (e.g., retail mutual funds) because the former (1) usually have
lower management fees owing to scale economies, (2) can use more performance
sensitive fees to better align the manager’s interests with those of the investor, and (3)
have lower costs for client accounting, client servicing, and managing daily cash
flows.
== Management fees owing to scale economies is negative to performance (return)
== Costs for client accounting, client servicing, and managing daily cash flows is
negative to performance (return)
From longer-term results, the article disagree that active funds are more likely to
outperform even during financial downturns and recessions.
In the real world, the average active fund underperforms the index, net of fees.
And the passive alternative and not to the index itself. On that basis, the average
active fund earns roughly the same return as the average passive fund, net of fees.
Mutual fund returns exhibit modest persistence but only if excess returns are
adjusted to account for style biases.
Active Share_BetterAlpha
PS Summary:
Small funds are more active, while a significant fraction of large funds are closet
indexers. However, for funds with large-cap benchmarks this pattern emerges only
gradually after $1bn in assets. Before that, fund size does not matter much for the
fraction of active positions in the portfolio.
Funds with the highest Active Share significantly outperform their benchmarks
both before and after expenses. In contrast, active management as measured by
tracking error does not predict higher returns.
Portfolio Turnover White Paper_American Century Investment_2007-2008
Many other recent studies indicate that high turnover is not correlated with a lower
return (trading costs concern). But this paper regressed fund turnover versus returns
for each size/categories funds and finds the relationships that:
15BFM Mutual Funds Project
16BFM Mutual Funds Project
Other Factors-Economy/Market
The Mutual Fund Industry Worldwide: Explicit and Closet Indexing, Fees, and
Performance: 2002-2007
Data source comes from 30 countries.
PS Summary:
The degree of explicit indexing in a country is negatively related to fees, while
“closet indexing” is positively associated with fees and negatively with performance.
Less competition in a fund industry makes it easier to outperform for those fund
managers who are willing to deviate more from their benchmarks.
The degree of indexing in a country affects the overall competitive environment
in the fund industry. Fees are negatively associated with the level of explicit indexing,
suggesting that having low-cost mutual fund options may increase competition and
drag down prices. In contrast, fees are positively related with the level of closet
indexing. That is, the less active management practiced by funds, the lower the
competition and the higher the fees. Our results suggest that fund fees depend not
only on the regulatory environment of a country, but also on the level of indexing in a
country, both explicit and implicit.
The amount of active management is related to the competitive environment of
the industry. We find that less competition makes it easier to outperform for those
fund managers who are willing to deviate more from their benchmarks.
Overall, our results suggest that many investors world-wide face a limited
opportunity set in their mutual fund investments. In many countries, investors are not
given the option of paying lower fees for explicit passive management, but instead
they pay higher fees and receive implicit passive management rather than receiving
the benefits (and higher returns) from truly active management.
The Morningstar Category Classifications: 2006
Large-blend portfolios’ returns are often similar to those of the S&P 500 Index. Bear-
market portfolios’ returns generally move in the opposite direction of the benchmark
index.
Research and recommendations for the serious fund investor: 2005-2010
Expense ratio is negatively related to funds return. Star rating is positively related to
funds return. Expense ratios are the most dependable predictor of performance.
Morning Star Ratings And Mutual Fund Performance
http://www.slideshare.net/bfmresearch/morningstar-fund-investorfeespredictor
17BFM Mutual Funds Project
First, low ratings from Morningstar generally indicate relatively poor future
performance. Second, there is little statistical evidence that Morningstar's highest-
rated funds outperform the next-to-highest and median-rated funds. Third,
Morningstar ratings, at best, do only slightly better than the alternative predictors in
forecasting future fund performance.
Investment Belief System_
Belief is unconscious ye it matters. Belief of a company can be changed and
sometimes it has to be changed. People can simulate and evaluate their belief and the
interaction among different cultures and blend and generate new believes.
Performance Persistence Of Fixed Income Mutual Funds
Method used: winner-winner, winner-loser, loser-loser, loser-winner, winner-gone,
loser-gone. z-statistics.
Result: except for one year period, both government bond and corporation bond show
remarkable performance persistence.
Untangling Skill and Luck_1999-2009
It develops a Skill-Luck Method to distinguish the contribution of skill and luck in
Sports, Business and Investments. Variance (skill) =Variance (observation)-Variance
(luck).
For investment:
● Long streaks in mutual fund results occur more frequently than the null model
predicts.
● Strong mean reversion for results in mutual funds, investing styles, and asset
classes.
● Different strategies work in varying economic situations.
You Get What You Pay For, And Sometimes More: A Cautionary Note for
Investors: 1995-2009
Fee structures created powerful incentives to enter inappropriate investments and
breach ethical mores. Employees may violate the law to generate superior
performance.
Publish date: November 30, 2009
Agree
18BFM Mutual Funds Project
HowtoChooseaMoneyManager_ RonMuhlenkamp_ July, 2011
http://www.slideshare.net/bfmresearch/fund-pick-muhlenkampmoneymanager
Both managers and investors need to stick to their philosophies and both are confident
and understanding to get them through the whole period of investments.
Short-Term Persistence in Mutual Fund Performance: 1985-1995
The economic significance of persistence in mutual fund abnormal returns is
questionable. Investor cash flows can distort inference in mutual fund performance.
Performance Of Local Versus Foreign Mutual Fund Managers
“Home Bias” definition: The tendency for investors to invest in a large amount of
domestic equities, despite the purported benefits of diversifying into foreign equities.
This bias is believed to have arisen as a result of the extra difficulties associated with
investing in foreign equities, such as legal restrictions and additional transaction costs.
Read more: http://www.investopedia.com/terms/h/homebias.asp#ixzz1hxyeCB00
According to Home Bias, foreign fund managers even outperform local managers,
especially for investing in small companies, which is not as expectation before that
local managers have more access to information for decisions
The Relation Between Price And Performance In The Mutual Fund Industry
Funds with worse before-fee performance charge higher fees. This negative relation
between fees and performance is robust and can be explained as the outcome of
strategic fee-setting by mutual funds in the presence of investors with different
degrees of sensitivity to performance. We also find some evidence that better fund
governance may bring fees more in line with performance.
Derivertives Use And Risk Taking: Evidence From The Hedge Fund Industry:
Published 2011
In hedge fund Industry, different from the popular press’s portrait of derivatives as
perilous investments, derivatives-using hedge funds on average display lower risk
under several measures such as return volatility, market risk, downside risk, and
extreme event risk, while there is some trace of speculation motivated use of
derivatives.
Running From A Bear: How Poor Stock Market Performance Determinants Of
19BFM Mutual Funds Project
Mutual Fund Flow, 1991-2002
The determinants of fund flow depend on market conditions for both redemptions and
purchases. Specifically, for redemptions, relative performance and risk adjusted
performance are important determinants during a period of record flows into mutual
funds.
Long-term Capital Market Return Assumptions--1995-2010
Through the correlation matrix of among the expected 10-15 year returns of U.S
Economic Indicatiors, Fixed Income, Equity and Alternative, the author found the
moderate economic growth is positive to equity market returns.
Active Management Mostly Efficient Markets_FAJ
Factors and relationships: management fee (-), costs for client accounting (-),
performance-sensitive fee (+), own capital (+), higher return dispersion and volatility
(+), past performance (+), macroeconomic correlations (+), fund/manager
characteristics (+), analyses of fund holdings(+)
20You can also read
