Global Equity Fund Performance: An Attribution Approach

Investment performance, regulation and incentives: the case of Chilean pension funds

“…Overall, our results show that active investment by Chilean AFPs (through mutual funds for foreign investments and 'in house' for local investments) has resulted in returns which are not significantly different from those of investing in low cost investment vehicles using similar broad asset allocations, but the significant return differences between AFPs indicate that selecting managers with active strategies may be a source of value, in line with the performance evidence for institutional investors that invest outside the USA (Dyck et al, 2013;Gallagher et al, 2017;Gerakos et al, 2017). These results suggest that if new regulation happened to require all investment abroad to take place via passive low-cost investment vehicles, it would imply foregoing the potential gains from active investment by a few managers.…”

“…Dyck et al (2013) find that asset managers investing in emerging markets and Europe achieved abnormal returns. In global equity markets, Gallagher et al (2017) find that asset managers produce abnormal returns but Busse et al (2014) do not find evidence of positive alphas. The differences in the results of these studies arise because they consider different data sets, relying mostly on proprietary or survey data.…”

Global equity fund performance adjusted for equity and currency factors

“…Therefore, rather than positive excess returns being attributable to factor exposures, we find the converse, with the average fund being underexposed to outperforming factors. The results also suggest that the average fund manager in our sample shows signs of stock-selection skill, with the average alpha of +0.32 percent per quarter equating to an economically 2 The dataset used by Gallagher et al, (2017) includes funds based in a range of currencies. It was necessary to limit the sample to US dollar-based funds in this study, as the number of funds managed in other currencies was insufficient to conduct statistical testing given that analysis must be undertaken separately for each base currency.…”

“…The current study establishes the extent to which these excess returns might have been attributable to factor exposures. We use a subset of the same database as Gallagher et al, (2017) including funds based in US dollars. 2 These funds generate an average excess return over their benchmark indices of +0.19 percent per quarter 3 (0.8 percent p.a., insignificant).…”

“…6 The research on institutional global equity funds is limited in part due to the lack of publicly available databases, particularly for separately segregated accounts which rely on data held by asset owners, consultants or custodians. Three other studies that access such datasets are Busse et al, (2014), Gallagher et al, (2017) and Gerakos et al, (2021). These studies find that institutional global equity funds tend to outperform, although statistical significance varies.…”