Do active managers live up to their pitch? : an empirical study on Scandinavian active fund performance in crises

Abstract

Active fund management is a heated topic. Investors have been willing to pay for skilled active managers in the belief that they will obtain greater returns. The literature remains skeptical. In their defence active managers counter that they outperform in times of crisis such that their involvement has a “hedging” or “insurance effect”. Yet, existing literature do not support active manager’s ability to deliver on their promise. This thesis challenges the active manager pitch by observing the performance of actively managed funds in Scandinavia in crisis relative to non-crisis. Debatable topics such as investment focus, fees, active share, and persistence are assessed. The main conclusion suggests that active managers fail to outperform across the Scandinavian market. Yet, the concept of an “insurance premium” gains some support. In sum, these findings add to the pile of literature on active fund underperformance, and thus managers failing to deliver on their pitch.