Abstract
Despite the lack of convincing evidence that active investment fund
managers add value, the number of actively-managed US mutual funds
has increased substantially over the last 25 years. While non-sector
diversified mutual funds have received much attention, sector funds,
except real estate mutual funds (REMFs), have not. In this paper, we
provide new and more robust evidence on the performance of active
REMFs compared to all actively managed mutual funds. We use the
Carhart four-factor model with an additional liquidity factor as a riskadjusted benchmark. We use wild bootstrap methods to deal with
small samples, non-normality and heteroscedasticity, and we control
for the false discovery of significant results.
For portfolios of fund types, we find evidence of both significant
outperformance and underperformance, net of fees, during 1992-2016.
We consider non-overlapping five-year and three-year periods and find
very limited evidence of persistent outperformance. For individual
funds, we find that, for both sector and diversified funds, net of fees,
only 0.79% are skilled. We find persistence in skills for only two individual fund managers of diversified funds.
We investigate the effects of the outsourcing of management and
of team versus individual management. Outsourcing has no effect
on performance of non-RE sector funds but, for cap-based funds and
style-based funds, it has a negative effect. There is some evidence that
this may also be true for REMFs. Team management has no effect
for any types of funds.
Overall, we conclude that REMFs are generally no different from
other sector funds.
managers add value, the number of actively-managed US mutual funds
has increased substantially over the last 25 years. While non-sector
diversified mutual funds have received much attention, sector funds,
except real estate mutual funds (REMFs), have not. In this paper, we
provide new and more robust evidence on the performance of active
REMFs compared to all actively managed mutual funds. We use the
Carhart four-factor model with an additional liquidity factor as a riskadjusted benchmark. We use wild bootstrap methods to deal with
small samples, non-normality and heteroscedasticity, and we control
for the false discovery of significant results.
For portfolios of fund types, we find evidence of both significant
outperformance and underperformance, net of fees, during 1992-2016.
We consider non-overlapping five-year and three-year periods and find
very limited evidence of persistent outperformance. For individual
funds, we find that, for both sector and diversified funds, net of fees,
only 0.79% are skilled. We find persistence in skills for only two individual fund managers of diversified funds.
We investigate the effects of the outsourcing of management and
of team versus individual management. Outsourcing has no effect
on performance of non-RE sector funds but, for cap-based funds and
style-based funds, it has a negative effect. There is some evidence that
this may also be true for REMFs. Team management has no effect
for any types of funds.
Overall, we conclude that REMFs are generally no different from
other sector funds.
| Original language | English |
|---|---|
| Publisher | University of Aberdeen |
| Pages | 1-58 |
| Number of pages | 58 |
| Volume | 20 |
| Publication status | Published - May 2020 |
Publication series
| Name | Discussion Papers in Economics and Finance |
|---|---|
| No. | 5 |
| Volume | 20 |
| ISSN (Electronic) | 0143-4543 |
Keywords
- mutual fund performance evaluation
- false discovery rate
- risk-factor model
- real estate
- Mutual fund performance evaluation
- False discovery rate
- Real estate
- Risk-factor model