Hire or fire?

Abstract: Today fund investment options are endless. To be able to profit, talented fund managers are of great importance. The purpose of this thesis is to communicate the real performance of managers and if they are skilled enough to cover their costs. This analysis can contribute to the decision of hiring or firing a fund manager. The main data consist of fund returns from Bloomberg and fee information from Morningstar. Three performance measurements, Jensen’s Alpha, Carhart’s Four Factor model and Sharpe ratios, are used to analyse fund managers’ skills in terms of gross and net returns. Two types of statistical tests, a Gibbons-Ross-Shanken test and a t-test, are performed to determine the significance of the results. The Sharpe ratios are positive for both gross and net returns but they are in general not significantly better than the market Sharpe ratio. The gross and the net alphas from Jensen’s Alpha and Carhart’s Four Factor model show a negative tendency. In conclusion, the overall real performance is inferior among managers and the ability to cover costs is weak.