Performance and Market Maturity in Mutual Funds: Is Real Estate Different?
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Performance and Market Maturity in Mutual Funds: Is Real Estate Different? Bryan D. MacGregor1 · Rainer Schulz1 · Yuan Zhao1
© The Author(s) 2020
Abstract Despite the lack of convincing evidence that active investment fund managers add value, the number of actively-managed US mutual funds has increased substantially over the last 25 years. While non-sector diversified mutual funds have received much attention, sector funds, except real estate mutual funds (REMFs), have not. In this paper, we provide new and more robust evidence on the performance of active REMFs compared to all actively managed mutual funds. We use the Carhart fourfactor model with an additional liquidity factor as a risk-adjusted benchmark. We use wild bootstrap methods to deal with small samples, non-normality and heteroscedasticity, and we control for the false discovery of significant results. For portfolios of fund types, we find evidence of both significant outperformance and underperformance, net of fees, during 1992-2016. We consider non-overlapping five-year and three-year periods and find very limited evidence of persistent outperformance. For individual funds, we find that, for both sector and diversified funds, net of fees, only 0.79% are skilled. We find persistence in skills for only two individual fund managers of diversified funds. We investigate the effects of the outsourcing of management and of team versus individual management. Outsourcing has no effect on performance of non-RE sector funds but, for cap-based funds and style-based funds, it has a negative effect. There is some evidence that this may also be true for REMFs. Team management has no effect for any types of funds. Overall, we conclude that REMFs are generally no different from other sector funds. Keywords Mutual fund performance evaluation · False discovery rate · Risk-factor model · Real estate Bryan D. MacGregor
[email protected] Rainer Schulz [email protected] Yuan Zhao [email protected] 1
University of Aberdeen Business School, Edward Wright Building, Dunbar Street, Aberdeen AB24 3QY, UK
B.D. MacGregor et al.
Introduction The ability of active investment fund managers to add value has long been the subject of academic research. Although this research produces limited evidence of superior risk-adjusted performance from active management, the number of actively-managed US mutual funds has increased substantially. Between 1992 and 2016, the number of active non-sector diversified mutual funds grew from 1330 to 4179, while mutual funds specialising in a particular industrial sector grew at the same rate, from 169 to 540, but represented only 11 percent of mutual funds.1 The argument for these actively-managed funds remains that of Grossman and Stiglitz (1980) that active managers are able to develop superior skills in stock selection and the timing of purchases and sales. Despite the growth of actively-managed sector mutual funds, there are no significant studies of such funds, with the exception of real estate mutual funds (REMFs). This paper fills
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