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UK fund returns and sector diversification

Author

Listed:
  • Aneel Keswani

    (Cass Business School)

  • David Stolin

    (University of Toulouse, Toulouse Business School)

  • Maxim Zagonov

    (University of Toulouse, Toulouse Business School)

Abstract

We examine the performance of UK equity mutual funds relative to the simple passive alternative of equal sector-weighting. While it has often been reported that only a minority of funds beat the market index, such funds are nonetheless numerous, and many investors have been drawn to active management in the hope that they can spot these funds (Gruber 1996). By contrast, we show that few if any funds outperform equal weighting of industry sectors in the post-1987 period. Our results significantly increase the burden of proof on active equity fund managers wishing to convince investors that they can outperform passive strategies, and introduce an easy to implement passive alternative for would-be investors in such funds.

Suggested Citation

  • Aneel Keswani & David Stolin & Maxim Zagonov, 2016. "UK fund returns and sector diversification," Economics Bulletin, AccessEcon, vol. 36(1), pages 10-21.
    • Handle: RePEc:ebl:ecbull:eb-16-00046
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2016/Volume36/EB-16-V36-I1-P2.pdf
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    References listed on IDEAS

    as
    1. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    2. Jonathan B. Berk & Richard C. Green, 2004. "Mutual Fund Flows and Performance in Rational Markets," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1269-1295, December.
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    Cited by:

    1. Hanke, Bernd & Keswani, Aneel & Quigley, Garrett & Zagonov, Maxim, 2018. "Survivorship bias and comparability of UK open-ended fund databases," Economics Letters, Elsevier, vol. 172(C), pages 110-114.

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    More about this item

    Keywords

    mutual funds; factor models; smart beta; diversification return;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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