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Can Mutual Funds Outguess the Market
... It is used to assess the managers stock selection skills, simply put assessing whether a stock was bought at its low or at its peak. Treynor-Mazuy (1966) and Henriksson Merton (1981) are two distinct traditional models developed for testing market timing and stock selection abilities of fund managers. While touted for forecasting both macro and micro trends, traditional models lack macro forecasting capabilities. ...
... The overall results suggest that emerging market equity funds outperform developed market funds. Guha Deb et al. (2007) uses the Treynor-Mazuy (1966) model, Henriksson-Merton (1981) model and Jensen's Alpha to evaluate stock selection ability and the index manager's skill in selecting undervalued stocks and predicting market movements. The study found that most funds underperformed in timing skills and only a small portion of the funds demonstrated statistically significant timing skills, which aligns with the global research that generally suggests market timing is a difficult skill to master consistently. ...
... Treynor-Mazuy (1966) 4 Henriksson Merton (1981) ...
The Indian mutual fund industry has witnessed substantial growth, especially following the 2017 "Mutual Funds Sahi Hai" campaign by the Association of Mutual Funds in India (AMFI). Investors often rely on past Net Asset Value (NAV), fund categories, prominent fund managers, and rankings to make investment decisions. However, rankings alone may not rigorously determine a fund’s future performance. This study explores the correlation between mutual fund rankings and their actual performance, emphasizing macro and micro forecasting techniques employed by fund managers. The research utilizes the Treynor-Mazuy (1966) and Henriksson-Merton (1981) models to evaluate market timing and stock selection abilities of Indian mutual fund managers. Additionally, tracking error and the information ratio are analyzed to assess fund performance consistency. Findings indicate that while mutual funds in India consistently generate excess returns relative to benchmarks, fund managers exhibit weak market timing abilities but strong stock selection skills. Moreover, CMFR rankings do not necessarily correlate with higher returns, as funds with lower rankings often outperform those ranked higher. This study highlights the need for a multi-metric evaluation approach for investment decisions, incorporating models like Treynor-Mazuy and Henriksson-Merton. It underscores that mutual fund rankings alone are not sufficient indicators of superior performance and that investors should consider additional performance metrics to make informed investment choices.
... Conversely, market timing refers to the capability of investment managers to adjust portfolio holdings in response to changes in the asset portfolio or overall market price movements. Studies by Treynor and Mazuy (1966), Kon and Jen (1978), Henriksson and Merton (1981), and Lee and Rahman (1990) examined mutual fund market timing and selectivity. These studies have indicated that mutual fund managers generally underperform in terms of market timing and selectivity. ...
... These studies have indicated that mutual fund managers generally underperform in terms of market timing and selectivity. Treynor and Mazuy (1966) incorporated a quadratic term into the CAPM to assess market timing and selectivity. They used another CAPM-based model with a quadratic element to evaluate managers' ability to predict market fluctuations. ...
... In this study, we employed two models to examine market selectivity and timing. The following foundational model introduced by Treynor and Mazuy (1966) augments the CAPM or market model with a quadratic component to capture market timing and selectivity: ...
The investment landscape often grapples with the ethical dilemmas posed by “sin stocks,” shedding light on the complex interactions between investor sentiment, societal standards, and market behavior. Although sin stocks have been the subject of some analysis, the exploration into cannabis exchange-traded funds (ETFs) remains sparse. This research compares the performance of cannabis ETFs against both U.S. and international equities, delving into their correlation, returns, and risk across a variety of market scenarios, including the effects of the COVID-19 pandemic. The findings suggest that cannabis ETFs generally lag traditional equities, highlighting potential risks. While they performed better during the COVID-19 lockdown, the findings point to inadequate security selection and a lack of effective market timing strategies. Even though equally weighted portfolios that included cannabis ETFs and broader market indices provided a slight risk reduction when compared to investing in cannabis ETFs alone, they consistently underperformed the conventional equity indices in terms of risk-adjusted returns across all analyzed periods. The diversification benefit was most pronounced during the volatile COVID-19 closure period, but it was less effective in the post-vaccination market environment. Cannabis ETFs may promise higher returns, but their significant downside risk requires careful assessment to determine if the potential rewards justify the risk. This research stresses the importance of adopting careful investment strategies in this developing sector.
... Market timing, on the other hand, refers to an investment manager's capacity to adjust their portfolio holdings to anticipate changes in the asset portfolio or market price movement in general. Mutual fund market timing and selectivity have already been investigated (Treynor & Mazuy, 1966;Kon & Jen, 1979;Henriksson & Merton, 1981;Lee & Rahman, 1990). Previous research found that mutual fund managers had only minimal performance in market timing and selectivity. ...
... Previous research found that mutual fund managers had only minimal performance in market timing and selectivity. To account for market timing and selectivity, Treynor and Mazuy (1966) included a quadratic term to the Capital Asset Pricing Model (CAPM). Treynor and Mazuy (1966) introduced a quadratic term in another CAPM-based model that has become a standard for gauging timing skill to address managers' abilities to foresee market swings. ...
... To account for market timing and selectivity, Treynor and Mazuy (1966) included a quadratic term to the Capital Asset Pricing Model (CAPM). Treynor and Mazuy (1966) introduced a quadratic term in another CAPM-based model that has become a standard for gauging timing skill to address managers' abilities to foresee market swings. Treynor and Mazuy (1966), Kon and Jen (1979), Henriksson and Merton (1981), and Lee and Rahman (1990) found that mutual fund managers are only moderately successful in terms of market timing and selectivity. ...
Homebuilder ETFs provide investors with a diversified portfolio of residential construction and sales companies which reduces risks associated with individual stock selection in the sector. This study examines the net monthly returns of homebuilder exchange-traded funds (ETFs) through various performance evaluation models and market situations. The results reveal that these ETFs outperformed benchmark indices in absolute returns. Despite homebuilding being part of the real estate sector, the correlation between monthly returns of homebuilder ETFs and the Dow Jones US Real Estate Index, though positive, is not very high. The performance of ETFs varied across market conditions, demonstrating both outperformance and underperformance compared to U.S. stocks. During the COVID-19 pandemic, homebuilder ETFs displayed a decline, trailing behind U.S. equities in both absolute returns and risk-adjusted performance. This result emphasizes their vulnerability during economic crises. Utilizing a modified version of the Carhart factor model, significant exposure of real estate ETFs to the stock market was observed. Moreover, an assessment of ETF portfolio managers’ skills indicated proficiency in security selection but limited capabilities in market timing. Homebuilder ETFs pose higher downside risks than other indices, evident in their elevated Value at Risk (VaR) and Conditional Value at Risk (CVaR) values.
... This approach aims to provide enhanced insights into how options ETFs navigate challenges, contributing to a comprehensive understanding of their adaptability and effectiveness. Lastly, recognizing the predictive ability of the information derived from options trading for stock returns (Da Fonseca & Dawui, 2021;Della Corte et al., 2016), we use traditional conditional factor models (Henriksson & Merton, 1981;Treynor & Mazuy, 1966). This enables us to test the efficacy of fund managers' strategies, as in Badrinath and Gubellini (2011) and Huang and Wang (2013). ...
... Finally, we use Treynor and Mazuy's (1966) model to study managers' market timing and selectivity of options trading. This analysis offers a deeper understanding of managers' impact on ETF performance, especially in the context of options trading strategies. ...
... Despite the anticipated influence of managerial expertise in options trading, our findings suggest that options ETFs may trail behind U.S. equities, implying limited investment benefits within the ETF framework. Furthermore, both the conditional and the unconditional Treynor and Mazuy (1966) models demonstrate negative coefficients of market timing, indicating poor market timing across diverse market conditions. This suggests that managerial expertise in options trading has a limited impact on the performance dynamics of U.S. options ETFs. ...
... Fama and French (2015) five-factor model extended the Fama and French (1993) three-factor model by integrating the market, size, and value factors, along with additional components intended to capture profitability and investment characteristics. Treynor and Mazuy (1966) assessed fund managers' abilities by introducing a quadratic term into the market model. They argue that managers with effective market timing skills would demonstrate superior performance during strong market conditions and would experience fewer negative returns in weaker years, resulting in a convex relationship in the characteristic line. ...
... On the other hand, 'market timing' refers to the capacity of investment managers to modify their portfolio holdings in reaction to changes in the asset portfolio or general market price fluctuations. Previous research (Henriksson & Merton, 1981;Kon & Jen, 1978;Lee & Rahman, 1990;Treynor & Mazuy, 1966) has already investigated the areas of mutual fund market timing and selectivity. These studies repeatedly show that, on the whole, mutual fund managers generally perform poorly in terms of market timing and selectivity. ...
... These studies repeatedly show that, on the whole, mutual fund managers generally perform poorly in terms of market timing and selectivity. Treynor and Mazuy (1966) incorporated a quadratic term into the Capital Asset Pricing Model (CAPM) to evaluate market timing and selectivity. They utilized an additional CAPM-based model with a quadratic component to evaluate managers' aptitude in forecasting market volatility. ...
This study evaluates Indian mutual funds using a variety of criteria, demonstrating a historical tendency of lower monthly returns and volatility when compared to benchmark indexes. This positive risk profile implies that it will appeal to investors who want stability. Despite COVID-19-induced market volatility, mutual funds persistently outperform benchmark indices in terms of average return per unit of risk, highlighting their potential as a dependable investment option for stability seekers. Furthermore, Indian mutual funds routinely beat benchmark indexes in risk-adjusted terms. Despite having a positive alpha, it lacked statistical significance, indicating a possible reliance on market volatility rather than managerial ability. Notably, while mutual fund managers demonstrated ability in asset selection, they lacked market timing abilities. The study also reveals that Indian mutual funds may demonstrate a considerably reduced downside risk in unfavorable market circumstances than comparable benchmarks.
... We use two alternative models to assess the market timing skills of ETF managers. The first method is the Treynor and Mazuy (1966) model shown in equation (6): ...
... The second model used is that of Jagannathan and Korajczyk (1986). This model is based on Treynor and Mazuy (1966) model and further includes a cubic term of market excess performance. According to Holmes and Faff (2004), the cubic term is used to evaluate the ability of managers to time the volatility of the market. ...
... The market timing skills of ETF managers are discussed in this section. The results of the Treynor and Mazuy (1966) model are presented in Table 6. Alphas and betas of the model are similar to those obtained from the performance regression analysis in the previous sections. ...
The current study examines the performance of 76 Japanese equity Exchange Traded Funds (ETFs) over the period 1/1/2018-12/31/2022. Performance is estimated in several ways, that is, raw returns, alphas from single- and multi-factor regression models, and risk-adjusted returns. The market timing skills of ETF managers are examined too. The results reveal that, on average, the examined ETFs do not produce any material alpha. The results also indicate that the risk factors suggested by Fama and French (1993 & 2015) are more or less capable of explaining the performance of the Japanese ETFs. Finally, the findings show that 21% of ETF managers possess some sort of market timing skills. However, the managers fail to time the volatility of the stock market.
... On market timing, the timing ability of equity mutual funds has been extensively discussed in the literature (Treynor and Mazuy 1966;Henriksson and Merton 1981;Chang and Lewellen 1984;Admati et al. 1986;Graham and Harvey 1996;Ferson and Schadt 1996;Bollen and Busse 2001;Jiang et al. 2007). However, significantly less work has been undertaken on the timing ability of bond mutual funds, although bond funds account for a large part of many investors' portfolios. ...
... Alternatively, the return-based method measures whether a fund's beta is conditional on a benchmark portfolio, which requires only information about the fund's ex-post return and the returns of the relevant market benchmark. The two well-established regression-based models along this line are proposed by Treynor and Mazuy (1966) (henceforth, TM) and Henriksson and Merton (1981) (henceforth, HM). ...
... This would provide a complete picture of fund managers' market timing performance. Treynor and Mazuy (1966) specify a conditional beta model of market timing as: Henriksson and Merton (1981) specify the market timing regression as: ...
We apply the nonparametric methodology of Jiang (Journal of Empirical Finance 10:399–425, 2003) to examine whether bond mutual funds can time the bond market by adjusting their portfolios' market exposure based on anticipated market movement. This approach offers several advantages over the widely used regression-based tests such as Treynor and Mazuy (Harvard Business Review 44(4):131–136, 1966) and Henriksson and Merton (The Journal of Business 54(4):513–533, 1981). In a comprehensive study covering the USA, UK, and China, we find some evidence of positive market timing of bond funds at the individual fund level. On average, bond funds show neutral to slightly negative market timing abilities. After controlling for public information, we find that a smaller number of bond funds successfully time the market based on private timing signals. In terms of categories, we find strong evidence of positive market timing for Government bond funds as a group, consistent with the findings of Huang and Wang (Management Science 60:2091–2109, 2014).
... Selectivity is the ability to search for and choose undervalued securities to exploit the sub-optimal market weights of securities, while market timing is the ability to forecast the direction of the market and adjust portfolio betas to generate alpha. Two regression models, namely the Treynor-Mazuy (1966) and Henriksson-Merton (1981) were deployed for the study. The findings indicate that mutual funds did not exhibit significant selective skills or market timing abilities. ...
... Apart from the fact that this study seeks to bridge the knowledge gap regarding the ability of Nigerian find managers, it also seeks to improve upon earlier work from the methodological perspective. The study employs regression models developed by Treynor and Mazuy (1966) and Henriksson and Merton (1981) to evaluate these abilities. The models are well-known approaches in mutual fund studies for analyzing investment performance and market timing. ...
... Following the development of selective and timing models by Treynor and Mazuy (1966) and Henriksson and Merton (1981), multiple researchers have applied these models in different jurisdictions. Numerous studies indicated that mutual funds exhibited selective skills (Oliviera et al., 2018;Hacini & Dahou, 2019;Vidal-García & Vidal, 2021;Ariswati et al., 2021;Atta & Marzuki, 2021;Azis et al., 2022;Bani Ahmad et al., 2023). ...
This study evaluates the selective and market timing skills of mutual funds managers using monthly net asset values of all 30 actively managed equity-based funds that operated from January 2012 to December 2021 obtained from the Securities and Exchange Commission. Selectivity is the ability to search for and choose undervalued securities to exploit the sub-optimal market weights of securities, while market timing is the ability to forecast the direction of the market and adjust portfolio betas to generate alpha. Two regression models, namely the Treynor-Mazuy (1966) and Henriksson-Merton (1981) were deployed for the study. The findings indicate that mutual funds did not exhibit significant selective skills or market timing abilities. This outcome is consistent with the Efficient Market Hypothesis (EMH). Consequently, it becomes challenging for investors or fund managers to consistently outperform the market through stock selection or market timing. Based on the study's results, the recommendation for investors is to consider low-cost passive investment strategies, such as index funds or exchange-traded funds (ETFs), over actively managed funds.
... Thus, according to Romacho and Cortez (2005), the alpha can be interpreted as the incremental return (positive or negative) obtained in addition to a portfolio under CAPM. To estimate each component of the manager's contribution to the excess return, we have the model developed by Treynor and Mazuy (1966) which relates in a non-linear fashion the excess return of the portfolio and the excess return of the market. They studied a sample of 57 mutual funds, where they found that the managers had selectivity, but no timing. ...
... where: In order to investigate the abilities of the portfolio managers to anticipate market movements, we added the quadratic term 2 ,t m r to equation (1) as in Treynor and Mazuy (1966). The model becomes: ...
... As before, the model of Treynor and Mazuy (1966) with conditional parameterization results from adding the quadratic term 2 ,t m r to equation (3): ...
Neste trabalho, avaliamos o desempenho dos fundos de investimento em ações no mercado de capitais português. Para tal, aplicamos modelos não condicionais e condicionais a dados diários e testamos as hipóteses de os gestores terem ou não as capacidades de seletividade e/ou timing. Os resultados obtidos sugerem que os gestores possuem algumas capacidades de seletividade mas não de timing.
... The scholarly literature on the stock picking and market timing abilities of fund managers is extensive. Treynor and Mazuy (1966) carried out early research in this area (hereafter TM). Only one out of the 57 funds in their sample met their criteria, according to a model they developed to assess fund managers' market timing abilities. ...
... The study comes to the conclusion that Chinese funds do not routinely produce excess returns, nonetheless. Treynor and Mazuy (1966) discovered that fund managers had not been successful in outwitting the market when they assessed the market timing skills of 57 fund managers. The results showed that investors were entirely dependent on changes in the market. ...
... The study used Treynor's (1965) methodology to evaluate mutual fund performance. Treynor and Mazuy (1966) were one of the earliest researchers who analysed whether fund managers were successfully studying and predicting the market cycles. They developed a simple test based applied the same on 57 open-ended funds for the period 1953 to 1962 and found no evidence from their sample except one fund that could predict the market timing effectively including different objective based funds. ...
A pool of funds administered by an investing firm is referred to as a mutual fund. Low A pool of funds administered by an investing firm is referred to as a mutual fund. Low transaction costs, portfolio diversity, and expert management are all the benefits included in it. One of the most common financial methods in the financial climate is investment through mutual funds. As a result, a lot of work has gone into analysing the mutual fund. The period of study was 27 month approximately starting from 1 st January 2020 to 28th April 2022.Reason for selecting the time period was unveiling the performance of selected mutual funds due to unlikely behaviour of the stock market. The study examines the mutual fund scheme performances of 25 mutual fund schemes with growth option classified as per market capitalization. Funds were selected at random basis. Treynor measurement, Sharpe measurement, M-square, and Sharpe Differential were used to calculate mutual fund performance. Hypotheses were framed to check the significant difference in stock selection ability of fund managers and risk adjusted performance of the fund. The study resulted that sample schemes give positive rewarded returns to investors for the level of market risk incurred. The study reveals that as per IR measures the sample schemes have consistency in performance in the long run. Under the unconditional models, TM and HM Models were used, Study's findings showed that fund managers in different funds were successful at their fund selectivity skills but not the market timing skills in selected period. Even while funds outperformed when assessed using several risk-adjusted criteria, market timing abilities of fund managers were found negative in all cases.
... Predicting aggregated returns of a certain asset class exploits the tendency for prices of all assets in that class to move together, 22 and is commonly referred to as market timing. Treynor & Mazuy (1966) argue that, if portfolio managers are able to correctly predict at least the direction of the benchmark returns (i.e., whether these will be positive or negative) and invest accordingly, their portfolios are characterized by elevated returns relative to the benchmark in times of positive benchmark returns, and lower return magnitudes when negative benchmark returns are realized. The principle of Treynor & Mazuy (1966) can be captured in an statistical test by adding a quadratic term to Equation (27) in the form of ...
... Treynor & Mazuy (1966) argue that, if portfolio managers are able to correctly predict at least the direction of the benchmark returns (i.e., whether these will be positive or negative) and invest accordingly, their portfolios are characterized by elevated returns relative to the benchmark in times of positive benchmark returns, and lower return magnitudes when negative benchmark returns are realized. The principle of Treynor & Mazuy (1966) can be captured in an statistical test by adding a quadratic term to Equation (27) in the form of ...
In my dissertation, I develop new portfolio optimization methodologies designed to enhance empirical performance in practical applications. Instead of relying on asset characteristics as intermediary variables to estimate the distribution of asset returns—an approach that introduces estimation errors—this work explores methods that directly incorporate asset characteristics as input variables in the optimization program. By bypassing the estimation step, these approaches aim to improve robustness and efficiency in portfolio construction. This dissertation contributes to both active and passive portfolio management.
... Finally, to evaluate the presence of market timing in the FOFs index 10CapVW3m, Treynor and Mazuy (1966) regression, which augments the traditional CAPM with a quadratic term by adding the squared market excess return, was employed. If the index (or managers) has market forecasting ability, it can outweigh the corresponding market exposure in cases featuring positive excess market returns but fails to do so in down markets, thus leading to a convex relationship between these portfolio returns and market returns. ...
... If the index (or managers) has market forecasting ability, it can outweigh the corresponding market exposure in cases featuring positive excess market returns but fails to do so in down markets, thus leading to a convex relationship between these portfolio returns and market returns. Formula 6 presents the regression model: Formula 6: Market timing (Treynor and Mazuy, 1966) Ind i,t − Rf t = constant + β · (Mkt t − Rf t ) + γ · (Mkt t − Rf t ) 2 + ε t , (6) where Ind i,t − Rf t is the log return of index i on day t minus the risk-free interest rate on day t, in which context index i can be one of the following: BOVA11, FOFs index VW, FOFs index 10VW, FOFs index 10CapVW, and FOFs index 10CapVW3m. ...
This study aims to evaluate the performance of equity funds of funds (FOFs) in Brazil. First, panel regressions were used to identify the determinants of returns and value creation associated with FOFs. We then estimate the probability of FOFs outperforming mirror and master funds and their corresponding determinants. Finally, FOF indices are constructed and their performance is analyzed against the backdrop of the BOVA11 exchange-traded fund (ETF). The results of this research indicate that the determinants of returns are aligned with the Fama-French ‒Carhart factors, all of which have positive coefficients. However, equity FOFs exhibit lower returns than other equity funds and destroy value relative to mirror and master funds. FOFs are associated with lower risks owing to diversification effects. In terms of probability, equity FOFs are not more likely to achieve superior returns than other funds. During the 2015 economic crisis in Brazil, FOFs were associated with higher probability. Finally, the FOF indices suggest profitable strategies that focus on factors such as size, growth, and liquidity.
... As risk adjusted returns are also important for investors, and the capability of the funds to generate these returns are also compared with some measures like Sharpe and Treynor ratios [51]. Literature says that ESG funds may offer greater risk-adjusted returns [40] [48]. ...
... As a result, the Sharpe basis cannot accept third hypothesis. The Treynor measure implicitly assumes that the portfolio is well-managed and systematic risk is the measure of risk and measures the portfolio performance relates the excess return given on a portfolio to the portfolio beta for a well-managed portfolio [51]. Table 8 presents the Treynor measure of the portfolio risk premium for each unit of risk. ...
... Similar to the method adopted by Bollen and Busse (2001), fund manager skills were analysed by applying Treynor and Mazuy's (1966) market-timing model in our multifactor model (1) as follows: ...
... To fill this gap, we examine the financial performance of conventional, natural resource-, energy-, and precious-metal-related mutual and pension funds, considering the effects of the crisis. To this end, this study implements Fama and French's (2015) five-factor model and a multifactor version of Treynor and Mazuy's (1966) market-timing model on a sample of 1115 mutual funds and 1189 pension funds for the period 2016-2022. ...
The natural resource sector plays a critical role in advancing sustainable development. However, fossil fuels, precious metals, and mineral extraction require large investments, which mutual and pension funds may assume when allowing fund managers to fulfil their fiduciary duties. This study examines the financial performance of conventional, natural resource, energy, and precious metal-related mutual and pension funds, considering the effects of the COVID-19 pandemic. We adopted a five-factor model with a sample of 42 natural resource funds, 45 energy funds, 45 precious metal funds, and 2172 conventional funds from January 2016 to December 2022. The results indicate that driven by fund managers’ reverse stock-picking skills, the precious metal fund category reaches the lowest mean risk-adjusted return in relation to the energy, natural resources, and conventional fund categories. Additionally, the COVID-19 global health crisis negatively affected the mean risk-adjusted returns on the energy, precious metals, and conventional funding categories. A similar effect is observed in the natural resource pension fund category, while its matching mutual fund category achieves similar financial performance during the non-crisis and crisis periods.
... Si bien, existen diversos indicadores para estimar la rentabilidad de un portafolio, tales como el ratio de Treynor (Treynor y Mazuy, 1966) o el Alfa de Jensen (Jensen, 1968), los cuales al igual que el ratio de Sharpe toman en cuenta una tasa libre de riesgo, pero en lugar de expresarlo respecto al riesgo del portafolio a través de la desviación estándar lo hacen respecto a la beta del portafolio calculada. Dado el objetivo de la presente investigación, resulta conveniente la utilización del ratio de Sharpe. ...
En el presente artículo se analiza el riesgo y el rendimiento de un portafolio diversificado en el mercado bursátil mexicano, esto a través del cálculo del riesgo sistemático y el ratio de Sharpe para realizar un comparativo entre la situación prepandemia y pospandemia, considerando datos de agosto de 2017 a julio de 2022. Se ha encontrado que si bien, un portafolio diversificado en México ha incrementado sus niveles de riesgo y rendimiento en la situación pospandemia, no existe suficiente evidencia que demuestre la presencia de un cambio estadísticamente significativo entre la situación prepandemia y pospandemia, por lo cual se concluye que el mercado bursátil en México se ajustó rápidamente, lo cual pudiera ser una prueba indirecta de la hipótesis de los mercados eficientes.
... This aligns with the theory that an investment manager must have the ability to predict and determine the right time to invest the investor's funds into investment products. According to Treynor & Mazuy (1966), when the value of y (gamma) is positive, it indicates a good Market Timing Ability of the investment manager. ...
This study aims to analyze the influence of market timing ability, stock selection skill, and unsystematic risk on the performance of Sharia stock mutual funds. A quantitative approach with purposive sampling was used to select ten Sharia stock mutual fund companies. The data interval for the Sharia stock mutual funds spans from 2018 to 2022. The data analysis method employed panel data regression with a common effect model approach. The research results indicate that market timing ability and stock selection skill positively affect Sharia stock mutual funds, meaning that an improvement in stock selection skill will lead to better performance of the Sharia stock mutual fund. Similarly, an improvement in market timing ability will enhance the performance of the Sharia stock mutual fund. In contrast, unsystematic risk negatively affects the performance of Sharia stock mutual funds, meaning that an increase in unsystematic risk can lead to a decrease in performance. This condition should be a particular concern for investment managers in managing Sharia stock mutual funds, to improve their stock selection skills and market timing ability to maintain the quality of the mutual funds they manage. Additionally, unsystematic risk should be closely monitored to avoid potential losses by diversifying the Sharia stock portfolio appropriately.
... 2) Compute and compare numerical indicators such as past return and volatility, Sharpe's ratio, correlation and downside risk with respect to benchmarks, turnover ratio, style analysis, etc. (Elton and Gruber, 1991) 3) Analyze market timing using statistical tests such as Treynor-Mazuy's test. (Treynor and Mazuy, 1966) 4) Investigate diversification effects among the subset of hedge funds using a Farrar's analysis. (Farrar, 1962) At the end of this step, the initial list of hedge funds should be substantially shortened. ...
... The comovement of volatility between the market and a fund can be interesting as well. Fund managers are known to use market-timing and market volatility timing strategies (Treynor and Mazuy, 1966;Merton and Henriksson, 1981;Busse (1999). From the hedging perspective, if an investor's portfolio is exposed to the market, adding a fund which comoves with market volatility can be suboptimal due to kurtosis. ...
The purpose of the article. Managed portfolios are subject to tail risks, which can be either index level (systematic) or fund-specific. Examples of fund-specific extreme events include those due to big bets or fraud. This paper studies the two components in relation to compensation structure in managed portfolios. Methodology. A novel methodology is developed to decompose return skewness and kurtosis into various systematic and idiosyncratic components and applied it to the returns of different fund types to assess the significance of these sources. In addition, a simple model generates fund-specific tail risk and its asymmetric dependence on the market, and makes predictions for where such risks should be concentrated. The model predicts that systematic tail risks increase with an increased weight on systematic returns in compensation and idiosyncratic tail risks increase with the degree of convexity in contracts. Results of the research. The model predictions are supported with empirical results. Hedge funds are subject to higher idiosyncratic tail risks and Exchange Traded Funds exhibit higher systematic tail risks. In skewness and kurtosis decompositions, the results indicate that coskewness is an important source for fund skewness, but fund kurtosis is driven by cokurtosis, as well as volatility comovement and residual kurtosis, with the importance of these components varying across fund types. Investors are subject to different sources of skewness and fat tail risks through delegated investments. Volatility based tail risk hedging is not effective for all fund styles and types.
... Timing strategies aim to limit risk, minimize losses and maximize returns by limiting exposures to certain stocks with the consideration of future market trends. Treynor and Mazuy (1966) conceptualized the idea of market timing, where they attribute a manager's skill to be a contributing factor to the success, or lack thereof, of obtaining favorable returns. The expectations of the market factor increasing or decreasing would lead to the manager adjusting the portfolio positions by either increasing exposure or decreasing exposure based on market expectations. ...
The pursuit of higher returns has led to a growing interest in factor timing as a strategy to enhance portfolio returns. Momentum is a popular factor, which involves buying securities that have shown consistent price appreciation over the past 3 to 12 months or past few years, with the expectation that the trend will continue and reducing exposure to those that consistently declined. An important part of a factor timing strategy is in the portfolio optimization process. This article aimed to first construct a large capitalization pure momentum portfolio, which included a dynamic stringent portfolio construction process criteria for selecting stocks estimated from historical data. Second, as a part of the portfolio's risk management strategy, the Kalman filter was applied to the historical performance of this portfolio. Lastly, the ARIMA forecast was used to estimate expected performance and the confidence intervals. The empirical results showed that this pure equity momentum factor timing framework with the Kalman filter together with the ARIMA (autoregressive integrated moving average) forecasting methodology was iterative and incorporated new information as it became available and further enhanced the monitoring and rebalancing process. This adaptive approach enabled the portfolio to capitalize on time-varying return anomalies as they occured.
... The Sortino ratio (Rollinger and Hoffman 2013) is also utilized to distinguish between upside and downside volatility, unlike the Sharpe ratio, which primarily assesses returns falling below the expected threshold. Another important metric is the Treynor ratio (Van Dyk et al. 2014;Treynor and Mazuy 1966), which measures excess returns relative to an investment with no diversifiable risk. Finally, Jensen's alpha (Jensen 1968) calculates abnormal returns compared to the theoretically expected returns. ...
Recent research in algorithmic trading has primarily focused on ultra-high-frequency strategies and index estimation. In response to the need for a low-frequency, real-world trading model, we developed an enhanced algorithm that builds on existing models with high hit ratios and low maximum drawdowns. We utilized established price indicators, including the stochastic oscillator and Williams %R, while introducing a volume factor to improve the model’s robustness and performance. The refined algorithm achieved superior returns while maintaining its high hit ratio and low maximum drawdown. Specifically, we leveraged 2X and 3X signals, incorporating volume data, the 52-week average, standard deviation, and other variables. The dataset comprised SPY ETF price and volume data spanning from 2010 to 2023, over 13 years. Our enhanced algorithmic model outperformed both the benchmark and previous iterations, achieving a hit rate of over 90%, a maximum drawdown of less than 1%, an average of 1.5 trades per year, a total return of 519.3%, and an annualized return (AnnR) of 15.1%. This analysis demonstrates that the model’s simplicity, ease of use, and interpretability provide valuable tools for investors, although it is important to note that past performance does not guarantee future returns.
... 펀드 성과를 평가하는 전통적인 지표에는 실무에서 널리 사용되는 알파 (Jensen, 1968), 베타 (Treynor and Mazuy, 1966;Fama, 1972;Henriksson and Merton, 1981), 샤프비율 (Sharpe, 1966), 트레이너비율 (Treynor, 1965) 외에도 알파 분산 (Jobson and Korkie, 1982;Fama and French, 2015), 트레이너비율 분산 (Jobson and Korkie, 1981), 정보비율 (Grinold, 1989;Roll, 1992;Grinold and Kahn, 1999;Jorison, 2003), 평가비율 (Treynor and Black, 1973 ...
This study introduces novel methodologies for assessing fund performance using asset pricing measures. Focusing on Korea’s fund market, this study empirically examines the performance of both actively and passively managed funds, revealing that actively managed funds generally underperform. This study bridges asset pricing and active management theories, and offers fresh insights into fund evaluation.
... A common approach to analyze market timing looks at the relationship between fund return and market return. Treynor and Mazuy (1966) regress fund returns on market return and squared market return, while Henriksson and Merton (1981) use a dummy variable for periods with above average market return. Most studies of market timing in funds modify one of these two approaches (Elton & Gruber, 2020). ...
... Throughout the 1970s and 1980s, extensive scholarly inquiry focused on mutual fund performance evaluation, primarily assessing fund managers' abilities to time the market and select securities. Studies by Treynor & Mazuy (1996), Jensen (1968), Kon & Jen (1979), and others scrutinized the efficacy of portfolio management strategies, concluding that consistent market timing and security selection are elusive goals for mutual fund managers. Consequently, long-term mutual fund performance was deemed predominantly random, challenging notions of sustained outperformance. ...
The paper investigates the mutual fund ecosystem in Uttarakhand, India, focusing on investor behavior, preferences, and the
constraints and opportunities within the region. By evaluating data from a sample of 516 respondents, the study intends to give insights
for industry stakeholders to increase mutual fund penetration and financial inclusion in Uttarakhand. The research underlines the
major significance of mutual funds in mobilizing household savings and fuelling economic growth, particularly in rural and semi-urban
areas. It identifies poor investor awareness, limited access to financial services, and cultural factors as important problems,
underlining the need for focused measures to remove these hurdles. Through a systematic investigation of investor behavior and
preferences, the study intends to reveal actionable insights for mutual fund houses, regulators, legislators, and financial intermediaries.
By encouraging financial literacy, boosting investor awareness, and fostering inclusive growth initiatives, stakeholders can harness the
full potential of mutual funds as a vehicle for wealth generation and economic development in Uttarakhand.
... Treynor Ratio: (Treynor and Mazuy 1966) gave another measure of performance evaluation, popularly known as the Treynor ratio. It is quite alike to the Sharpe ratio as it also determines excess returns created by an investment over the risk-free rate. ...
Emergence of COVID-19 had profound impact on global stock markets, including Indian mar-ket. Key indices like NIFTY50 and Sensex dropped by approximately 40% within two months in 2020, which also affected major mutual funds, leading to significant depreciation of their Net Asset Value. Securities and Exchange Board of India (SEBI) allows mutual funds to use deriva-tives for hedging purposes, capped at 100% of the scheme's net assets covering debt, equity, and derivatives. However, circular amendment by SEBI in January-2019 permitted covered call strat-egies on constituent stocks of Sensex and NIFTY50 for mutual fund schemes, excluding ETFs and Index Funds. This study investigated whether mutual funds increased their derivative us-age as risk mitigation strategy during COVID-19 pandemic, analyzing derivative holdings from 2019-2023. Surprisingly, findings indicated a decline in derivative holdings in 2020 compared to pre-pandemic levels. Statistical tests and performance evaluation metrics such as T-test, F-test, Treynor Ratio, Sharpe Ratio, and Jensen's calculations were employed to assess mutual fund performance. Although derivative-holding mutual funds didn't outperform benchmarks in aver-age returns, it showcased significantly reduced volatility, offering investors favorable risk-return trade-offs. research sheds light on derivative utilization in Mutual Fund industry, potentially in-forming regulators, fund managers, and investors in their decision-making
... Positive α in this model means superior performance. Treynor and Mazuy (1966) decomposes superior performance into securities (stock) selection and market timing with the following model: ...
This study investigates the association among management fees, ESG scores, and investment performance of ESG funds in China. It explores the significance of comprehending the cost–benefit analysis and long-term yields associated with sustainable investing. The investigation specifically concentrates on China’s open-end equity funds and uncovers some noteworthy discoveries. Initially, funds with higher management fees tend to yield greater returns, suggesting a potential validation for these fees. Nevertheless, when taking risk-adjusted metrics into account, these funds do not exhibit superior performance, indicating that the elevated fees may not necessarily result in enhanced performance after factoring in risk. Furthermore, the analysis discloses an adverse influence of ESG factors on fund performance. In general, the findings indicate that ESG funds in China do not impose higher management fees and do not ensure better returns but often produce superior risk-adjusted investment performance if their ESG scores are moderately higher. Exceptionally high ESG scores can end up with the worst risk-adjusted investment performance.
... Sharpe (1966) conducted a study of on 34 open-ended mutual funds from 1954 to 1963 and the study revealed in terms of risk that out 19 out of 34 funds performed better than benchmark and further found out that funds having low expenses ratio had better performance and also minimal relation was observed between performance and fund size. Treynor & Mazuy (1966) constructed model to assess performance of funds predicting returns. While applying this model to 57 open ended funds for 10 years, they could not find any statistical proof to suggest assets managers of those funds were unable to anticipate market movement early. ...
This dissertation examines the financial performance of selected mutual fund schemes having similar issue date and find out the better mutual funds among the four selected schemes. This study further assesses the impact of variability of NEPSE Index in the financial performance of these mutual fund schemes. The analysis has been done using different statistical and financial tools. Various performance measures like Sharpe ratio, Treynor ratio, Jensen Alpha, holding period return, Net Assets Value and correlation coefficient have been used to analyze the performance. The findings of this study will contribute to understanding the factors influencing mutual fund performance in Nepal, understand the impact of NEPSE Index’s movement in performance of mutual funds and offer valuable insights for investors, fund managers, and policymakers to enhance decision-making and optimize mutual fund performance in the Nepalese market.
The Indian economy, often described as cost-sensitive, has seen significant growth in investments in mutual funds and witnessed an increase in the number of investors and total assets under management from 2010 to 2023. This study aims to evaluate the effectiveness of mutual funds in India by identifying those that outperform benchmark indices, assessing the stock selection skills of fund managers, and examining their market timing abilities. The study further investigates the function of market efficiency by looking into two major areas of fund management-market timing and stock selection. Stock selection measures a portfolio manager's skill in selecting stocks, and market timing measures a portfolio's ability to increase exposure to the portfolio in expectation of better movements during a defined period. The study uses the Sharpe ratio, Information Ratio, and Treynor-Mazuy model to analyze mutual fund data. The results indicate that over 80 percent of mutual funds are market independent, with high stock picking ability. Nonetheless, 8% of the funds that showed a market timing ability had little else in terms of active trading, indicating a long-term outlook of investments as opposed to short-term trade strategies. The study concludes that Indian mutual funds have exhibited market timing capabilities and generated positive alpha, signifying risk-adjusted outperformance relative to the market.
The paper builds on an analysis by Chekenya and Klingelh€ ofer to examine the possible existence of systematic performance differences between B-BBEE affiliated and non-B-BBEE affiliated mutual fund firms in South Africa and see whether the indigenisation laws affect firm performance directly through their effects on firm behaviour. Our key conjecture is that by distinguishing between different mechanisms by which B-BBEE laws can affect mutual fund performance, there are observed significant positive effects at the level of firm behaviour. To the extent that the concept of B-BBEE in South Africa fosters economic progress, the results of this study suggest that investors not necessarily view such a policy negatively. The paper's results also cannot confirm with statistical significance the expectation motivated by theory that B-BBEE laws influence firm performance negatively, thus, predicting a block for foreign investment. Our much longer sample period (from 2004 to 2016) does not lead to significant other results than a prior study published only shortly after the B-BBEE laws coming into force. However, our results could not confirm that these laws have effects on firm performance. ARTICLE HISTORY
Purpose
This study aims to comprehensively examine sustainable mutual funds (SMFs) research by conducting a systematic literature review and bibliometric analysis of articles spanning 33 years from 1991 to 2023. This review seeks to uncover the principal contributors and the structural framework of knowledge within the realm of business, finance and management research concerning SMFs.
Design/methodology/approach
Following the “Scientific Procedures and Rationales for Systematic Literature Reviews (SPAR-4-SLR)” methodology, the author selected 597 documents for the analysis and collected the bibliographic information from the Scopus database. The author uses RStudio and VOSviewer software to address five research questions.
Findings
The findings indicate a notable expansion in research concerning SMFs within high-quality journals over the last 33 years. The review illuminates the principal contributors in SMFs research by using performance analysis based on journal, article, author, country and institution criteria. By using science mapping techniques, the author identifies five prevailing themes and outlines future research prospects in the domain of SMFs.
Practical implications
This review paper can serve as a roadmap for future researchers, aiding them in discerning the trending research topics within this domain.
Originality/value
To the best of the author’s knowledge, this is the first study that comprehensively provides an overview of different variants, diverse strands and research hotspots of SMFs literature. The study offers insight into the evolution of SMFs, showcasing their progression from a segmented market to a prominently specialized domain in the contemporary landscape.
Yatırım fonlarına ilgi özellikle COVID pandemisi döneminden sonra hızla artmıştır. Alternatif yatırım aracı arayışı içinde olan ve göreceli olarak finansal okuryazarlığı düşük olan yatırımcılar, farklı türlerdeki yatırım fonlarına yönelmişlerdir. Bunda özellikle mobil bankacılığının gelişmesi ve yaygın hale gelmesi de önemli bir rol oynamıştır. Bu gelişmelerin yanında, Türkiye’de katılım finans alanı da hızlı biçimde ivme kazanmıştır. Özellikle tasarruflarını değerlendirmek isteyen ancak konvansiyonel finans araçlarına karşı hassasiyeti olan yatırımcılar, alternatif gördükleri katılım finans araçlarına yönelmişlerdir. Günümüzde birçok aracı kurum, bu kitleye hitap eden yatırım fonlarıyla hizmet vermektedir. Bu çalışmada Temmuz 2016–Kasım 2023 döneminde sürekli aktif olan 6 Katılım, 18 Konvansiyonel yatırım fonu, farklı kriterler kullanılarak riske göre düzeltilmiş getiri bakımından COVID pandemisi öncesi, COVID pandemisi dönemi ve sonra için karşılaştırılmıştır. Çalışma sonuçları katılım fonlarının, konvansiyonel fonlarla rekabet edebildiğini göstermektedir. Bu sonuç Türkiye gibi katılım finansmanın hızla geliştiği bir ülkede katılım fonlarının konvansiyonel fonlara önemli bir alternatif oluşturduğunu göstermektedir.
In this article, I use a total timing measure that differentiates between cash‐flow timing and discount‐rate timing to assess value creation among actively managed US equity mutual funds. My findings indicate that some funds exhibit cash‐flow timing skills. Collectively, the top 20% of timing funds generate $3.4 billion annually in constant January 2000 dollars. Both sector rotation and individual stock selection contribute to executing timing techniques. Skilled timing funds shift their stockholdings toward cyclical sectors when anticipating positive changes in aggregate cash flows and toward defensive sectors when anticipating negative changes. Sector funds demonstrate similar cash‐flow timing skills through their individual stock bets.
Research background
Investment funds are an important part of the capital market. Household savings in this type of asset are increasing every year. From an investor’s point of view, the performance of funds is important. These, along with the risks, are what most often determine the choice of fund type and finally the specific fund. The performance of a fund is often determined by both the size of the fund and the application of the managers’ selectivity and market sense.
Purpose
The aim of this research is to investigate the impact of fund size on performance through the use of selectivity and market sense by managers. Dividing funds into size groups will allow the search for patterns in terms of managers’ use of market timing.
Research methodology
The research used a Treynor-Mazuy model as a market timing model and Ward’s method as the cluster analysis methods. The performance of the funds was determined using an investment performance indicator, i.e., Omega.
Results
The obtained results indicate that the funds are similar within the groups. However, there were differences in the results between the groups. During periods of high volatility, it is recommended to invest in units of funds with an average size below the median.
Novelty
The added value is the study of market timing in groups of funds similar in size. In each group, the results of the Treynor-Mazuy model estimation, and the Omega investment efficiency index were determined, and the differences in the obtained results between the groups were examined. Finally, all funds were clustered using the Ward method.
The study examined the performance of Mutual Funds' investment portfolio in Nigeria. The objective was to investigate the relationship between investments in money market securities, bonds, equity security and return on assets of Mutual Funds in Nigeria. The design of the study was ex-post facto research design. Twelve (12) Mutual Funds listed in the Nigerian Stock Exchange were studied. Data were obtained from the Nigerian Stock Exchange, National Bureau of Statistics, and the Central Bank of Nigeria and analyzed using the ordinary least square (OLS) multiple regression analysis. It was found that investment in money market securities does not significantly influence the return on assets of mutual funds in Nigeria. Secondly, it was discovered that there is a significant negative relationship between investment in bonds and returns on assets of mutual funds in Nigeria. Next, investment in equity security does not significantly influence return on assets of mutual funds in Nigeria. Lastly, the study revealed that only investment in equity was positive and statistically significant, investment in bonds was negative and statistically significant while investment in money market securities was positive but statistically insignificant in the model. It was concluded from the findings that investment portfolio influences the performance of mutual funds in Nigeria. Based on the above findings and conclusion, it was recommended among others that mutual funds should focus on investment in equity while investment in bonds should be embarked on with caution. Further, investment in money market securities can be plausible if carefully analyzed to ensure that it yields a significant contribution that will compensate for the resources committed by investors.
The study investigates the performance of open-ended, direct, growth-oriented ESG schemes and solution-oriented schemes, which include child benefit schemes and retirement benefit schemes, from April 2014 to December 2023 in the dynamic economy. The study covers 44 mutual fund schemes including 25 retirement funds, 10 children's funds, and 9 ESG funds. The return from the fund schemes has been computed using the daily closing NAV of the various schemes that were chosen. To assess the risk, the NSE-Nifty 100, representing the market portfolio, has been employed as a benchmark for comparing the different schemes. The historical performance of the selected funds has been evaluated based on Sharpe, Treynor, and Alpha measures, whose results will be useful for investors in making better investment decisions. The study reveals that the majority of the mutual fund schemes that were chosen for analysis had outperformed the return on the benchmark. It was also evident from the findings that several of the plans had underperformed. This study is relevant since it is the first of its kind to focus on solution-oriented mutual funds as a whole.
The performance evaluation of an investment portfolio is designed to appraise the quality of the asset manager’s work by analysing the outcomes achieved and the ways in which these results were obtained. This activity involves the identification of: (1) return on the investment portfolio, accounting for alternative calculation methods and selecting the most appropriate one, depending on the objective pursued; (2) portfolio risk, in its various absolute, asymmetric, and relative forms, and the related risk-adjusted performance indicators; (3) the asset manager’s ability to perform effective stock picking by selecting the best stocks on the reference market; (4) the asset manager’s ability to perform profitable market timing through effective tactical asset allocation, by temporarily overweight the sectors and asset classes which will outperform the market and, at the same time, underweight those which will underperform; (5) performance persistence, understood as an evaluation of the continuity and frequency with which the asset manager ranks in the best percentiles of his/her reference peer group.
We analyze the performance of asset allocation funds using a best-fit multifactor model that includes both stock and bond market factors. Utilizing large samples of allocation funds from both the US and the UK, we find that, on average, asset allocation funds do not outperform their benchmarks, and there is little or weak evidence of performance persistence when examining both decile portfolios and small-size portfolios. However, asset allocation funds still demonstrate superior abilities. At the individual fund level, some funds exhibit significant positive alphas, stock market timing, and bond market timing in both the US and UK markets. Furthermore, we find that US allocation funds with low past maximum drawdowns (MDDs) outperform those with high past MDDs during periods of high stock market returns and high stock market volatility. In contrast, UK allocation funds with low past MDDs outperform those with high MDDs when bond market returns are high.
This study analyzes US-domiciled actively managed global real estate funds (GREMFs) from 1/2010 to 12/2023. The results show superior selectivity and adverse market timing skills of fund managers. On average, GREMFs deliver alpha ranging from 2.52 percent to 2.75 percent per year after controlling for premiums offered by the market, size, value, and momentum effects. The alpha range increases to 4.65 percent annually after including the quadratic term of excess market returns. The results also show that many funds exhibit superior selectivity skills, thus making a case for investors to invest in actively managed GREMFs rather than investing in passive indices. However, the results also indicate that GREMFs are unable to manage beta loadings to their advantage.
In Today’s scenario, people are more concerned about their plans than present due to the uncertain environment. Everyone wants financial freedom and financial growth. For this, it is necessary to make an investment decision. Awareness and knowledge about investment instruments available in the market are extremely important to make the right investment decision. The present paper mainly focuses on risk and return analysis of mutual funds and fixed deposits. Investors seek to manage risk by diversifying their investments and evaluating risk-return trade-offs. Return is the reward for taking on risk. This paper also emphasizes the pros and cons of mutual fund and fixed deposits and their workings. Due to the vast array of savings and investment companies, the products they offer, the terms and conditions of investments, and the numerous complex rules and regulations in the financial market it is a very difficult task to invest funds according to choices. The majority of investors, especially those in rural areas, are found to be unaware of the available investment options and applicable laws. So, this paper addresses the benefits of investment instruments which help investors to choose the best available investment option according to their numerous life living purposes such as medical, education of children, retirement purposes etc.
This study evaluates the persistence of performance of actively managed, equity-based mutual funds in Nigeria using monthly net asset values (NAVs) of 30 funds obtained from the Securities and Exchange Commission over 10 years from 2012 to 2021. We employed a non-parametric technique based on the Contingency Table to test for performance persistence, using the Cross-Product Ratio (CPR) and the Rank Correlation statistics. Evidence shows that mutual funds do not exhibit performance persistence, and the performance of loser funds does not repeat, hence past performance does not predict future performance. Therefore, we recommend that retail investors (and their advisers) should not rely on historical performance to select mutual funds as an investment vehicle. This study provides valuable insight into the performance of actively managed funds in Nigeria and contributes to the ongoing debate about the efficiency of the financial markets and the role of active fund management. It suggests that investors might be better off with passive investment management strategies, given the lack of persistence in the performance of actively managed funds.
This study evaluates the risk-adjusted performance of equity mutual funds in Nigeria against the market benchmark and two alternative passive portfolios available to investors. Data on monthly net asset values (NAVs) of 30 actively managed, equity-based mutual funds that operated in Nigeria between 2012 and 2021 were collected and analyzed. Risk-adjusted performance measures including the Treynor ratio, Sharpe ratio, Jensen’s alpha, information ratio, Modigliani–Modigliani (M2) measure, Sortino ratio, and the Fama-French 3-factor regression model are used to evaluate the performance of mutual funds. Evidence shows that the Nigerian equity mutual fund portfolio does not deliver excess risk-adjusted returns, and underperforms the three simple passive portfolios against which it was benchmarked. However, mutual fund portfolios provide robust, low-cost diversification benefits and could be considered as part of a well-diversified portfolio of assets. This study explores investment strategies, with practical implications for investors, industry professionals, regulation, and academia. It provides a useful guide to retail investors and their advisers on managing their investment portfolios in the Nigerian stock market. In addition, it validates the veracity of the efficient-market hypothesis (EMH), implying that, on average, seeking alpha is, perhaps, a futile effort.
Swimming with Sharks: Can Small Investors Compete with Buffett? Pankaj Topiwala. FastVDO LLC, 3097 Cortona Dr., Melbourne, FL 32940 Abstract: Millions of small investors fare poorly in the financial markets. For them, the markets are like turbulent seas. Braving them in a mere skiff, a major storm can spell financial doom at any time. But the reality is that most investment funds also underperform the market. Against this backdrop, there are some savvy investors who have consistently beat the market, for decades! Names such Benjamin Graham, John Templeton, Peter Lynch, or Jim Simons come to mind. But no investor has beat the market as decisively or for as long as Warren Buffett, getting an annual return of nearly 20% since 1965! Is there a way that the small investor can swim with these sharks? These legendary investors developed a refined sense for valuing companies through fundamental analysis (hard work), investing in solid companies that are deep in value. The untrained small investor cannot hope to replicate their method. To enter these waters, she needs a new boat: algorithmic trading. Not the kind that trades in microseconds (high frequency trading), which is again out of her reach, but the type that trades only a few times a year (very low frequency). Using an approach developed and tested in previous papers, we go head-to-head with Buffett's famous BRK-A fund and compare performance over the 44-year period 1980-2024. Buffett's BRK-A earned 19% annual return over the 44 years. We also test a 50-year period, the historical limit for Nasdaq. By using simple algorithmic trading methods, we show that the small investor can indeed keep pace with Buffett, without the hard work. Our simple methods allow us to obtain both strong gains, and reduced drawdowns, helping us to survive the major market downturns known as Black Swan events. This win-win is good news for small investors worldwide.
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