The Effect of Portfolio Weighting on Investment Performance Evaluation: The Case of Actively Managed Mutual Funds

Performance analysis of mutual funds is usually made on the basis of return-risk framework. Traditionally, excess return (over risk-free rate) to risk ratios were used for the purpose mutual fund evaluation. Subsequently, the application of non-parametric mathematical programming techniques in the context of performance evaluation facilitated multi-criteria decision making. However,the estimates of performance on the basis of conventional programming techniques like DEA and FDH are affected by the presence of outliers in the sample observations. The present, accordingly uses more robust benchmarking techniques for evaluating the performance od sectoral mutual fund schemes based on observations for the second half of 2010. The USP of the present study is that it uses two partial frontier techniques (Order-m and Order- a) which are less susceptible to the problem of extreme data.

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Long-Term Sustainable Investment for Retirement

Sustainability ◽

10.3390/su13095000 ◽

2021 ◽

Vol 13 (9) ◽

pp. 5000

Author(s):

Iqbal Owadally ◽

Jean-René Mwizere ◽

Neema Kalidas ◽

Kalyanie Murugesu ◽

Muhammad Kashif

Keyword(s):

Mutual Funds ◽

Performance Metrics ◽

Retirement Income ◽

Retirement Plans ◽

Full Account ◽

Investment Performance ◽

Management Fees ◽

Sustainable Investment ◽

Managed Funds

We consider whether sustainable investment can deliver performance comparable to conventional investment in investors’ long-term retirement plans. On the capital markets, sustainable investment can be achieved through various instruments and strategies, one of them being investment in mutual funds that subscribe to ESG (environmental, social, and governance) principles. First, we compare the investment performance of ESG funds with matched conventional funds over the period 1994–2020, in Europe and the U.S. We find no significant evidence of differing performance (at 5% level) despite using a number of investment performance metrics. Second, we perform a historical backtest to model a UK personal retirement plan from 2000 till 2020, taking full account of investment management fees and transaction costs. We find that investing in an index-tracker fund overlaid with ESG screening delivers a pension which is 10.4% larger than is achieved if the index-tracker fund is used without screening. This is also 20.2% larger than is achieved by investing in a collection of actively managed funds with a sustainable purpose. We conclude that an ESG-screened long-term passive investment approach for retirement plans is likely to be successful in satisfying the twin objectives of a secure retirement income and of sustainability.

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