Investing in equity mutual funds : a study of the Norwegian fund market

Dobloug, Andreas; Haakestad, Per
Master thesis
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https://hdl.handle.net/11250/2679654
Date
2020
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Abstract
In this thesis we have analyzed Norwegian equity funds over the last eleven year period.

We investigate if the performance of individual funds can be attributed to the skillset of

managers, if investors can achieve abnormal returns by betting on funds with historical

good performance, and if applying an optimization framework within previous winners

provide additional benefits to the average of these funds. We use a data set free of

survivorship-bias with monthly and daily net returns for 55 actively managed Norwegian

mutual funds in the period 2009-2019.

We find that Norwegian equity mutual funds, on aggregate, are able to cover their costs,

but do not deliver any abnormal performance over their benchmark. To test the skillset of

managers in individual funds we apply a bootstrap procedure from Kosowski et al. (2006).

We are unable to find sufficient evidence to claim any presence of skill, or lack of skill,

among fund managers in the best and worst performing funds. Inspired by Riley (2019),

we then turn to a portfolio approach based largely on persistence in performance among

previous winners. With monthly rebalancing we find that optimal portfolios from the

Treynor and Black (1973) model achieve positive alphas before transaction costs across

several formation parameters, but do not deliver any added performance over the average

fund in the same portfolio. Despite the alphas being positive, we do not find enough

evidence to claim the strategy deliver a performance better than the passive benchmark

for an investor. We also test the long-run persistence in performance for the portfolios

and find that monthly rebalancing is necessary in order to maintain a positive alpha.

All taken together, our results indicate that actively managed Norwegian equity mutual

funds do not add value for investors compared to an equivalent passive investment. This

holds both when funds are evaluated individually and as portfolios consisting of past

winners.