Beating Index: A 2016-2020 Performance Evaluation of Scandinavian Registered Mid/Small-cap Equity Mutual Funds Under Active Management

Oliver Stefan Berg

Student thesis: Master thesis


This study examines the performance of Scandinavian registered mid/small-cap equity mutual funds under active management. The monthly returns of 36 equity funds, for the time period from January 2016 to December 2020, have been studied. The results show that more than half of the sampled funds outperform their primary prospectus benchmark indices in terms of active returns, both gross and net of fee. The results are somewhat contradictory when returns are risk-adjusted; findings confirm the conclusion of similar studies worldwide that a large proportion of the actively managed funds are, in fact, not able to outperform their respective benchmark indices on a riskadjusted basis. Results from the Jensen’s alpha measure suggest that most funds have been more likely to match the performance of their benchmark indices rather than outperforming or underperforming it. Among the few funds that have achieved a statistically significant alpha, more funds report positive monthly abnormal returns than negative, both gross and net of fee. When testing for market timing using the Treynor and Mazuy test, six funds indicate significant, positive market timing ability for the entire study-period; but only one fund has transmitted this ability into generating a significant alpha. To check robustness, the Durbin-Watson and BreuschPagan test is used for detection of autocorrelation and heteroscedasticity, respectively. As a consequence of the test results, robust standard errors are used in the regressions. This study also applies three performance ratios, including the Treynor Ratio, the Sharpe Ratio and the Information Ratio, whereof each contributes something distinctive to the analysis. About half of all the funds have positive ratios for the entire study period and even more so for the 12- month sub-period of 2020. The findings of this study complement the existing literature on fund performance, suggesting that most investors are likely to be better off by choosing a low-cost fund that replicates the index. Nevertheless, being cost-conscious while carefully reviewing the historical performance of potential funds of interest in their mutual fund selection process, a narrowly focused Scandinavian registered mid/small-cap fund under active management can indeed serve its purpose in an investor’s fund portfolio

EducationsMSc in International Marketing and Management, (Graduate Programme) Final Thesis
Publication date2021
Number of pages94