Mutual Fund Performance during the Covid-19 Crisis

David Lieberoth-Leden & Michael Herges

Student thesis: Master thesis


The question of whether investors should choose a passive or an active investment strategy has been discussed for decades. While especially in the beginning of the discourse, a lot of scholars advocated for a passive approach in favor of the efficient market hypothesis, in recent decades, more and more researchers discovered anomalies that active investors could exploit. As the majority of scholars focus on regular times, this thesis contributes to the ongoing debate by investigating the performance of active strategies during crisis times as those provide a unique environment of increased volatility and uncertainty. In detail, we investigate the performance of 1.602 actively managed US equity funds during the Covid-19 pandemic in 2020. Hereby, we conduct three OLS regressions, using the S&P 500 TR, CAPM, and Three-Factor Model, respectively, as explanatory variables, in order to determine each fund’s alpha for 2020. Additionally, we carry out supplementary analyses, namely a drawdown and a Sharpe Ratio analysis, to further assess the crisis performance. In the second part of our study, we compare the results for 2020 to the historical performance in regular times by performing similar regressions for the period from 2010 to 2019. We find very little evidence of a statistically significant alpha after fees for our sample in 2020. Specifically, in both regressions against the theoretical models, we obtain negative average and median alphas, whereas in the S&P 500 regression, only the median is negative while the average obtains a positive alpha. In addition, when looking at the drawdown analysis, the average active fund has to cope with more substantial losses and a slower recovery time compared to the S&P 500 TR. Further, we do not obtain a consistently significantly improved alpha when examining the performance in 2020 in contrast with that in 2010 to 2019. However, we detect tendencies of a modest improvement when comparing to the passive benchmark. Accordingly, our results are generally in support of the efficient market hypothesis, as even during the Covid-19 crisis, we do not find a significant outperformance of the active strategy.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2021
Number of pages480
SupervisorsSøren Plesner