Focused Funds – How Do They Perform in Comparison with More Diversified Funds?
Abstract: The purpose of this thesis is to determine whether or not focused funds can outperform bigger and more diversified funds, both in mean return and in its relation to risk taking. The data used in this thesis consist of 67 Swedish mutual funds, one benchmark index and 129 stocks. All data is from the period 2007-2011. The fund data is retrieved from FactSet, the benchmark index from SIX-Telekurs and the stock data from Nasdaq OMX Nordic. In addition, the data sets contain daily data. The information about the different funds number of holdings is retrieved from the Swedish Financial Supervisor Authority. The performance is measured in terms of mean return and using performance measures such as Fama and French three factor model, Carhart four factor model, Jensen´s alpha et cetera. To perform this, the funds are divided and sorted into five different groups depending on their number of holdings. The overall result shows poor performance for all the Swedish mutual funds. Despite this, the conclusion is that the focused funds outperform the funds with the most holdings during the test period.
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