The Relationship between Swedish Equity Funds´Management Fees and Performance

University essay from Högskolan i Jönköping/IHH, Nationalekonomi

Abstract:

An increasing number of people in Sweden and in the rest of the world are becoming more interested in the mutual fund sector. Investments in mutual funds have grown rapidly these past few years. Nilsson (2004) wrote that 85 percent of the Swedish population invested in mutual funds in 2004. The Swedish Investment Fund Association also found an increase in investments in mutual funds; 83 billion Swedish crowns were invested in mutual funds in 2005, an increase from 56 billion in 2004.

The purpose of this thesis is to evaluate whether or not there is a relationship between low fee, middle fee, and high fee charging Swedish Equity funds and their respective performance (unadjusted and risk-adjusted returns). The Modigliani & Modigliani (1997) risk-adjusted performance measurement was used to calculate the risk-adjusted performance of the 130 mutual funds. And the linear regression was used to analyze whether or not there was a relationship between the variables (management fee vs. returns/risk-adjusted returns). The mutual funds were also divided into three different categories, based on their management fees; low, middle and high fee mutual funds.

The analysis illustrated that there was no clear relationship between the management fee and the returns/risk-adjusted returns. There was some connection found between the management fee and the low, middle fee category. However, this research confirms that investors should not believe that a mutual fund which charges higher fees necessarily generate higher returns.

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