Money For Nothing? : A Study About the Performance of Actively Managed Swedish Mutual Funds

Abstract: Following the development and popularity of mutual funds among Swedish investors, the question of active fund management and return has become a central issue for private investors. 99 percent of the Swedish population invests in mutual funds, comprising a total net fund value of almost 2,000 billion SEK. The idea behind active management is for a charged fee, to generate a return higher than the return of the market. But statistics indicate a low level of competition between the largest providers and only one out of ten funds performs better than its index. Financial instability due to the last decade’s two recessions has indeed caused fluctuating performance of actively managed Swedish mutual funds. It has also spurred academics to investigate the role and effect of active management and attached management fees. The main purpose of this research is to investigate if there exist differences between the performance of benchmark indices and the performance of actively managed equity funds, balanced funds and money market funds provided by seven Swedish banks; Folksam, Länsförsäkringar, Handelsbanken, Nordea, SEB, Skandia and Swedbank. We also seek to investigate if the level of fee and total risk affect the fund performance. The research was deductively conducted with a quantitative method of inquiry. The ontological and epistemological positions are objectivism and positivism. Our sample of 21 Swedish mutual funds, with daily price observations was investigated between 2004 and 2011, with a division of four subperiods. To answer our research question and sub-questions, ten fictive portfolios were created and five hypotheses were formulated based on previous research and theories within the field. The data was analyzed with paired samples T-tests and multiple linear regression analyses. The portfolios included three risk-adjusted fund performance measures and Value at Risk.     We have concluded that on average both balanced funds and money market funds have performed worse than their benchmark indices in the period 2004 to 2011. The equity funds have also performed worse than their benchmark index but the difference is not statistically significant. The balanced funds had the highest return, the money market funds second highest return and equity funds the lowest return. Supported by the multiple regression analyses, we have concluded that fund performance is negatively related to the level of total risk in the period 2004 to 2011. There is no statistical relationship between fund performance and fund provider. We finally conclude that fund return during the entire investigation period, is negatively related to management fees.