Evaluation of Fund Manager Performance: An empirical study of Sweden funds between 2001 and 2005

Abstract: In this paper we aim to investigate 40 Sweden funds between the years 2001–2005, which constitute 12.6% of the total Swedish stock fund value on 31/12/2001 (Sweden funds and other stock funds). The model for evaluating the sampled Sweden funds is developed in Engström (2005), where he describes a framework of strategic and tactical performance in fund management. Moreover, we expand the study of Engström by evaluating Sweden funds both in bull & bear market conditions. We find that the average Sweden fund does not provide consistent excess risk-adjusted return for its investors subtracted of management fees. If one excludes management fees of the performance we find some support for excess risk-adjusted return of Sweden funds. Moreover, we find that managers of Sweden funds are able to create excess strategic alpha, yet are unable to create tactical alphas. Furthermore, we find that the alpha of the Sweden funds differ in bull & bear market and that the difference is mostly explained by difference in strategic alpha. Finally, we find no support that higher management fees are indicative or correlated with higher alpha (excluding management fees) – neither with strategic nor tactical performance.