Fund Manager Performance in Emerging Market: Factor Specialisation and Financial Crisis Impact

Abstract

In the branch of literature dealing with analysis of the consistency of management styles, this article investigates the relation between portfolio concentration and the performance of emerging market equity funds. Unlike previous studies, on global and US mutual fund, we focus on emerging markets equity, finding funds with higher levels of tracking error, display lower performance than funds with less diversified portfolios when we do not take into account specific concentration in holdings in different multifactor style. The explanatory power of local models that use local explanatory returns is recently investigated by De Groot, Pang and Swinkels (2012), Cakici, Fabozzi and Tan (2013) and Fama and French (2012). Following the same research line, the most remarkable finding of this article is that the fund-picking process, only based on the level of track error from a broad benchmark, can contribute to disappointing results when it is not also accompanied by information about the fund concentration in multiple market segment. According to the previous work, overall, we found that local factor market model provides quite good representation of local average returns for portfolios formed on size and style factors. The contribution of this research is two-fold. First, we examined emerging market funds from the perspective of active management and second, under the effect of strategies mentioned in Huij and Derwall (2011). Moreover, as additional analysis with respect to most of the previous papers, we also tested the effects of the crisis that we found to have not affected the main result.

Indian institutional investor's portfolio concentration decision: skill and performance

“…However, this study found that Indian investors who diversified their portfolios performed better than those who concentrated their portfolios. Our result aligns with Galloppo and Aliano (2018), who studied emerging markets. This study was mainly focused on the relationship between manager skills and portfolio concentration, which was found positive in previous studies.…”

“…However, few studies found that diversified funds performed better than concentrated funds. Galloppo and Aliano (2018) studied the emerging market and found no evidence supporting the positive relationship between concentration and fund performance.…”

Competitiveness of Franklin Templeton Fund Managers: Do the Fund Managers Exceed the Benchmark?

“…Results from a study by Barras et al (2006), in which the relatively new false discovery rate was used to assess the performance of unit trusts, may seem disquieting to ordinary investors who are convinced of the advantages of active portfolio management. Other authors scrutinized the performance of over 2,000 mutual funds and came to the conclusion that only 0.6% of these funds proved to actually defeat the market (Barras et al, 2006;Galloppo & Aliano, 2018;Vychytilova, 2018;Sosnowski, 2018). Along with these studies, others have shown similar outcomes in recent years.…”

Mutual funds' performance and relative strength of factor exposures

“…Graham et al ., 2020; Banegas et al ., 2013; Engstrom, 2003; Otten and Bams, 2002) and other regions, including some emerging markets (see, e.g. Galloppo and Aliano, 2018; Ferreira et al ., 2013; Huij and Post, 2011; Kaminsky et al ., 2004). Importantly, however, many of these studies highlight the role of market-specific qualitative differences, macroeconomic factors and market efficiency in less developed markets.…”