Do Active Fund Managers Outperform their Peers? A Study of Active Management and Performance in the Swedish Mutual Fund Market

Abstract: Primarily, the purpose of this paper is to examine the relationship between active management and fund performance in the Swedish mutual fund market, 2010-2021. Two measures of active management are used: Active Share and Tracking Error. The study is conducted by collecting data from Nasdaq and Morningstar on holdings and returns for Swedish equity mutual funds and five benchmark indexes. We have examined the relationship between active management and fund performance, measured as benchmark-adjusted return (alpha), primarily by using linear- and quantile regressions. The findings consistently imply a positive relationship between Active Share and fund performance, while the findings on Tracking Error are more ambiguous. Further, the findings suggest that the relationship between active management and fund performance is negative among low-performing funds, but positive among median- and high-performing funds. In addition, the findings suggest that the mean Tracking Error and Active Share has steadily increased over time in the period examined.