“Smart Money” in a bear market? : Swedish active equity mutual funds’ ability to add value towards investors in the bear market Q1 2020

• Main Authors: Löfvenberg, Mattias, Pålsson Högström, Simon
• Format: Others
• Language: English
• Published: Stockholms universitet, Företagsekonomiska institutionen 2020
• Subjects: Business Administration; Företagsekonomi
• Online Access: http://urn.kb.se/resolve?urn=urn:nbn:se:su:diva-190231

It is well-established by an abundance of previous empirical work presenting evidence that the average active equity mutual fund manager underperforms their benchmark net of expenses persistently over longer time-horizons. Active fund managers have the possibility to invest smart by forecasting the market and change their exposure to the market in regard of macroeconomic events to protect their portfolios violating the theory of an efficient market. In contrast to previous studies, this paper evaluates the average short-term risk-adjusted performance of 71 Swedish active equity mutual funds divided into subgroups of equally weighted portfolios consisting of small and large-sized funds during the first three months in the bear market 2020. This paper investigates if the average active fund manager with their assumption of an inefficient market and forecasting skills can pick mispriced stocks and provide loss-averse investors a safe haven with value-added returns in a market characterized with high volatility and uncertainty. A quantitative one-factor OLS regression based on the Capital Asset Pricing Model is used to obtain estimates of net Jensen’s Alphas. Additional risk-adjusted performance measures beyond the systematic risk component are used by evaluating the relative short-term performance among our three constructed fund portfolios to a broad benchmark. The results find insignificant negative net alphas among the constructed portfolios which do not violate the theory of an efficient market in any form and hence, no evidence is found of value-added performance among the average active fund manager. The findings conclude that the average active fund manager is not skilled enough to add value towards investors. A portfolio of small-sized funds indicates superior performance relative a portfolio of large funds although the performance is inferior compared to its benchmark in all measures.