Lastly, we investigate the effect of past performance on investor capital allocation, using correlation and regression analysis of capital flows on different performance metrics.We do not find evidence that the mutual funds in aggregate outperform the market in risk–adjusted net returns.A share of a mutual fund represents investments in many different stocks (or other securities) instead of just one holding.
After adjusting for luck, we find evidence that the top 5% of funds exhibit skills to earn 3.3% or more in annual alpha above the fees they charge,whereas the bottom 5% destroy at least 3.7% per year.
A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities such as stocks, bonds, money market instruments, and other assets.
This master thesis examines the performance difference between 78 U. dedicated mutual fund pension products (DMFPPs) and six U. Applying a single-factor and multi-factor model, I find that dedicated mutual fund pension products, on average, significantly underperform compared to traditional defined contribution funds.
I will interpret the findings in the context of the agency cost debate, where mutual funds are more exposed to hidden costs than pension funds and extend the interpretation with the help of the fund value maximization and public choice theory.
More and more retirees are given the choice to allocate their pension investments with either their traditional employer-based pension plan or with mutual funds.
Due to these developments, mutual funds increasingly provide pension products. Performance is measured relative to style-adjusted benchmarks and is taking the fund’s cost component into account.
Investing in a share of a mutual fund is different from investing in shares of stock.
Unlike stock, mutual fund shares do not give its holders any voting rights.
We find that investor capital allocation is affected by past performance, but we do not find conclusive evidence favoring one measure of performance over another.
In spite of weak evidence for skill among high performers, we find that the association between past performance and fund flows is stronger for high than for poor performers.