Efficiency in Portfolio Management of Equity Funds and Methods of Its Evaluation

Эффективность управления портфелями паевых инвестиционных фондов акций и ее оценка

Alexander Abramov, Alexander Radygin and Maria Chernova

Ekonomicheskaya Politika / Economic Policy, 2019, vol. 4, 8-47

Abstract: The paper discusses the key problems of information transparency of mutual funds which impede their development in the domestic financial market. In Russia, open-end mutual funds have not yet fulfilled their potential for retail investors. Earning the trust of private investors for them is complicated by a lot of unsolved problems. The most severe ones relate to the level of transparency and accessibility of information. We analyze some restrictions imposed on efficiency evaluation of equity funds by their investments in foreign financial instruments, the weakness of the benchmarks, and non-transparent information about the investment strategies. The multifactor asset pricing model tailored to the domestic stock market was used as an additional method of evaluating risks and returns of the equity funds. We rationalize that these models allow for internationally standardized analysis of fund performance and can identify fundamental factors which generate sustainable excess return. Our study revealed significant exposure of excess return of the funds to the broad market index and the small-cap equity premium. Since the 2008 financial crisis, the significance of the factor models for fund returns has tended to decline as a result of an increase of foreign assets share in fund portfolios and outflows of foreign investors from the Russian stock market. Using different examples of portfolio composition from the equity funds, we show that, under certain conditions, some methods of portfolio rebalancing combined with information on past performance allow investors to gain an excess return.

Keywords: asset pricing model; CAPM; growth stocks; value stocks; momentum; stock liquidity; foreign portfolio investors; factor investing; financial market; mutual funds (search for similar items in EconPapers)
JEL-codes: D53 E44 G11 G12 G17 G23 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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