Do You Pay Too Much? The Value of Active Management From the Perspective of a Nordic investor

Abstrakt

As the economy has been growing and the financial well-being of the population as well, the demand for investment solutions from private individuals has also seen an increase over the past years. This trend has been especially evident in the Nordic countries. Along with the fact that a majority of these investors do not have the time or interest to manage and monitor their investments themselves, has led to a growth in the market for investment funds. Lately, there has been a focus in popular media on investment funds, where the spotlight has been turned to the choice between actively and passively managed funds. International research has shown diverse findings on the topic and the previous research focused on the Nordic markets are scarce. The foundation behind this paper is found in this discussion and the purpose of the paper is to investigate whether it is worth paying for active management of investment funds. This purpose is operationalised by using the management fee of the fund as a proxy for whether it is actively or passively managed. The operationalisation allows for a large data set, which includes all funds listed in the Nordic countries. The data analysis seeks to find a relationship between management fee and the performance of the funds using a purely statistical methodology with focus on ordinary least squares regressions. This paper finds a significant evidence for passively managed equity-focused funds to be the preferred choice over its actively managed counterparts. When investigating further, it seems that the evidence is strongest for funds focusing on global markets and a little less for emerging markets. For funds investing in the home market, the Nordic markets, the tendency is non-existent and the evidence points more towards preferring actively managed funds, however, it is highly insignificant. The conclusions are further tested for its generalisability by carrying out similar analyses for other trade markets, longer time horizons and using other benchmarks. The effect these tests had on the results was found to be minor, hence the conclusions of this paper show a fairly high degree of generalisability