Investment choice and performance potential in the mutual fund industry
Journal
Journal of Asset Management
ISSN
1470-8272
Type
journal article
Date Issued
2012-04
Author(s)
Abstract
This article investigates the performance potential of a set of three investment choices: multi-asset, multi-management and multi-instrument. These approaches have been used recently in the asset management industry to give investors access to an extended investment universe, and to provide higher risk-adjusted returns to clients. In this context, we evaluate each investment choice's overall contribution to portfolio performance. Using bootstrapping simulations and a set of performance measures over a 20-year sample, we show that: 1. extending the typical equity- and bond-focused fund to a set of five asset classes increases the Sharpe ratio by 50 per cent on average, 2. allowing for third-party funds in a client's portfolio significantly reduces company-specific risk, and 3. including single assets leads to an increased return potential for skilled portfolio managers. Thus, our empirical results suggest that investments in actively managed mutual funds are likely to benefit significantly from these multi-investment approaches, and that the current practice of providing investors with balanced in-house funds is suboptimal.
Language
English
Keywords
Portfolio management
investment strategies
performance evaluation
mutual funds
bootstrapping.
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Henry Stewart Publications
Publisher place
London UK
Volume
13
Number
2
Start page
84
End page
101
Pages
18
Subject(s)
Eprints ID
217579