Finding the winners : ...among Swedish mutual equity funds

University essay from Uppsala universitet/Företagsekonomiska institutionen; Uppsala universitet/Företagsekonomiska institutionen

Author: Staffan Åberg; Erik Lindelöw; [2010]

Keywords: ;

Abstract:

During the last decades, there has been an on-going investment trend in mutual funds in Sweden. As of 2010, 82% of the Swedish population between the age of 18 and 74 own at least one mutual fund and if one should include the pension fund, the ratio would rise to an impressive 99%. About one quarter of this capital is put into Swedish mutual equity funds, which means that these mutual funds have a huge impact on ordinary investors.

After reviewing literature on this subject, the authors found that for an ordinary investor, investment decisions often relay on vague arguments or an intuitive feeling on how the market will evolve. So the purpose with this study is to see whether any of the available and easy accessible information of Swedish mutual funds should be used as a purchasing decision for an ordinary investor.

Can an ordinary investor yield a better than average risk adjusted return using Morningstar Rating, Morningstar Style box, a fund’s size, a fund’s management fee or a fund’s historical performance when purchasing Swedish mutual equity funds?

The paper had two major findings. Firstly, both Morningstar Rating and past performance could, even though the relation was weak, be used as an investment tool when screening the market for Swedish mutual equity funds that have better than average risk adjusted return. The authors found statistical evidence that higher star ranked mutual funds have better than average risk adjusted return than lower star ranked mutual funds, and that mutual funds with higher past performance have better than average risk adjusted return than mutual funds with lower past performance. However, the authors would not recommend ordinary investor to focus too much on these findings since the relation was weak. Secondly, no evidence could be found concerning a fund’s size and a fund’s management fee in respect of finding Swedish mutual equity funds that have better than average risk adjusted return. Also, some minor conclusions could be drawn regarding Morningstar Style Box, such as that high risk categorized mutual funds performed better than their low risk counterpart and that mutual funds that invested mostly in large companies underperform the mid and small size companies-investing funds.

 

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