For decades, the problem of portfolio management has been discussed, specifically the comparisons between the opposite poles ‘active’ and ‘passive’ management. Previous research has shown that passive management is preferred over active management, predominantly because of the expensive management fees, as well as proponents assuming an efficient market. The subject area is a well- explored area yet, highly relevant. Previous research has not highlighted the trading frequency in actively managed funds and an implication for further analysis within this area was given.
The purpose of this paper is to analyze whether the frequency of trade in actively managed funds may explain the risk-adjusted return, taking into account the management fees. A deductive approach will be applied to the development of existing theory. Based on the thesis purpose, a quantitative method was applied. As well as analyzing the information assigned by the mutual fund companies’ fund reports for conducting tests at different time periods.
Results of the thesis are based on 81 actively managed funds, indicating that it is not possible to reveal that, a higher frequency of trade will lead to a higher risk-adjusted return. Likewise, a higher management fee is not justified by the level of activity. The outcomes of the analysis are depicted through tables to provide a visualization of the statistical and analytical questions explored. Suggestions for future research include; consideration of what the fund companies define as requirements that will be classified as actively managed funds.
Based on the above notions the frequency of trade is a new approach to the evaluation of active management. Investors are presumed to have a known interest in what stimulates high management fees and how the money invested will be managed. With respect to the conclusion of this study; the level of the frequency in trade does not add any value.
|Date of Award||2014-Jul-03|
|Supervisor||Emil Numminen (Supervisor) & Timurs Umans (Examiner)|
- Degree of Bachelor of Science in Business and Economics
- 15 HE credits
Swedish Standard Keywords
- Business Administration (50202)
- active fund management
- frequency of trade
- the efficient market hypothesis
- risk-adjusted return
- management fee
- behavioral finance