Actively managed funds – Do they add value? An empirical examination of the performance of actively managed emerging markets and US large cap equity funds

Alexander Pahlow Mose

Student thesis: Master thesis


This paper present insight into whether two different categories of European-based actively managed mutual funds, solely separated by their geographical investment mandate, provide investors with equivalent returns during the period 2003 to 2014. One of the models employed used traditional performance measures influenced by the Capital Asset Pricing Model. Realizing the effect and as a means to address one of the major shortcomings of the model, a decision to incorporate the more recent Conditional Performance Evaluation techniques was made. Finally, in order to provide an alternative view of how well the managers performed during the 11 years of observation, this study employed a third method to estimate the value added and manager skill of the examined funds. The overall results suggest that neither the average emerging market nor the average US fund manager was able to create abnormal performance as indicated by the net expense alphas. However, the emerging market category documented point estimates closer to neutral. When employing gross returns the results indicated a positive tendency, suggesting that the average fund manager was able to outperform the market. The inference of this was that the value created by active investment strategies is primarily reaped by the management company itself. In response, this study found fund expenses to have a negative (US funds) to neutral (emerging market) impact on performance as documented by the deviating performance of low- and high-expense funds. The estimates of value added document a similar trend. Albeit the average estimates of value added were negative, noticeable differences between the emerging market and US funds were discovered, especially when considering shorter investment intervals. Finally, performance persistence was documented both when using the abnormal performance estimates and the value added estimates, suggesting that past performers were able to extend their good/ poor performance to subsequent periods.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2014
Number of pages94