Funds – not aging well? : an empirical evaluation of the relationship between fund age and performance in Nordic mutual funds

Abstract

This study examines how fund age empirically affects the performance of Nordic mutual funds. Our research questions are motivated by a high level of investments in actively managed funds in the Nordic countries, yet we consider determinants of the abnormal returns that these funds achieve to be understudied. The data set is free of survivorship bias, and consists of 1198(net, 1138 gross) Nordic equity funds between January 2006 and February 2021. Employing multivariate panel regressions, controlling for other fund characteristics, we investigate how fund age affects performance in terms of both beforeand after-fee returns on a risk-adjusted basis. Second, we research how age affects how funds are exposed to different types of risk, and whether it is affecting their investment style. Further, we investigate whether portfolios sorted by fund age are able to outperform risk-factor benchmarks. Lastly, we research persistence within age quintiles. When controlling for fund attributes that typically affect fund performance, such as the size and expense ratio of the fund, we find the relationship to be significantly positive, i.e., that older funds perform better. We find evidence that that older funds are less exposed towards total, market and unsystematic risk. We also find that investment styles significantly differ across fund age, as older funds are more exposed to the four risk factors proposed by Fama and French (2015b). We find that long-short portfolios of young and old funds are not able to achieve risk-adjusted returns. Lastly, by employing an analysis of persistence, we find evidence that neither old or young funds continue to outor underperform over a time period of one year.