Beyond the Returns - the U.S. Mutual Funds Value and Growth Style Weighted Sector Portfolios Investment Performance Attribution

Article Sidebar

PDF
Published Nov 4, 2021
DOI https://doi.org/10.28934/ea.21.54.2.pp1-19

Main Article Content

Boris Korenak
Investometrix
Nikola Stakić
Singidunum University, Danijelova 32, Belgrade, Serbia

Abstract

The aim of this study is to provide insight into the portfolios constructed out of sector mutual funds, based on value and growth investment styles. Moreover, this study does not exclusively consider the returns, but it looks beyond them by incorporating the holdings data into portfolio performance attribution. We use two different sector mutual funds across the US sectors, over the observed decade. The findings show that smart money was not able to produce the value on the cumulative basis. We show that growth style was favourable over the observed decade. In addition, by implementing the growth style based on Shiller price-to-earnings in the portfolio construction and assigning sector weights the tested portfolio offset partially and fully the negative effect by managers’ stock selection. Overall, the holdings-based relative portfolios attribution in relation to appropriate benchmarks gave additional insight into dynamics of the alpha creation and the loss of alpha. Brinson-Fackler and Brinson-Hood-Beebower attribution models are used including distinct model versions. In addition, the geometric attribution model is used to provide analytical consistency for multi-period attribution.

Article Details

Issue
Vol 54 No 2 (2021): Economic Analysis: Applied Research in Emerging Markets
Section
Articles
Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Once the manuscript is accepted for publication, authors shall transfer the copyright to the publisher. If the submitted manuscript is not accepted for printing by the journal, the authors shall retain all their rights. The following rights on the manuscript are transferred to the publisher, including any supplementary materials and any parts, extracts or elements of the manuscript:

  • the right to reproduce and distribute the manuscript in printed form, including print-on-demand;
  • the right to print prepublications, reprints and special editions of the manuscript;
  • the right to translate the manuscript into other languages;
  • the right to reproduce the manuscript using photomechanical or similar means including, but not limited to photocopy, and the right to distribute these copies;
  • the right to reproduce and distribute the manuscript electronically or optically using and all data carriers or storage media, and especially in machine readable/digitalized form on data carriers such as hard drive, CD-ROM, DVD, Blu-ray Disc (BD), Mini Disc, data tapes, and the right to reproduce and distribute the article via these data carriers;
  • the right to store the manuscript in databases, including online databases, as well as the right to transmit the manuscript in all technical systems and modes;
  • the right to make the manuscript available to the public or to closed user groups on individual demand, for use on monitors or other readers (including e-books), and in printable form for the user, either via the Internet, online service, or via internal or external networks.

Authors reserve the copyright to published articles and have the right to use the article in the same manner like third parties in accordance with the licence Attribution-Non-Commercial-Non-Derivate 4.0 International (CC BY). Thereby they must quote the basic bibliographic data of the source article published in the journal (authors, article title, journal title, volume, pagination).

References

Abergel, Frederic and Heckel, Thomas. 2021. “Performance Attribution for Factor Investing.” http://dx.doi.org/10.2139/ssrn.3450392
Ankrim, Ernest M., and Chris R. Hensel. 1992. “Multi-Currency Performance Attribution.” Russell Research Commentary
Bacon, Carl R. 2002. “Excess Returns—Arithmetic or Geometric?” Journal of Performance Measurement 6 (3): 23–31, http://dx.doi.org/10.2139/ssrn.1858937
Bacon, Carl R. 2008. “Practical Portfolio Performance Measurement and Attribution.” John Wiley & Sons.
Bonafede, Julia K., Steven J. Foresti, and Peter Matheos. 2002. “A Multi- Period Linking Algorithm That Has Stood the Test of Time.” Journal of Performance Measurement 7 (1): 15–26.
Brinson, G. P., & Fachler, N. 1985. “Measuring non-US. equity portfolio performance.” The Journal of Portfolio Management, 11(3). https://doi.org/10.3905/jpm.1985.409005
Brinson, G. P., Hood, L. R., & Beebower, G. L. 1986. “Determinants of Portfolio Performance.” Financial Analysts Journal, 42(4). https://doi.org/10.2469/faj.v42.n4.39
Campisi, Stephen. 2004. “Debunking the Interaction Myth.” Journal of Performance Measurement 8 (4): 63–70
Carhart, Mark M. 1997. “On Persistence in Mutual Fund Performance.” Journal of Finance 52 (1): 57–82.
Carino, David R. 1999. “Combining Attribution Effects over Time.” Journal of Performance Measurement 3 (4): 5–14.
Fama, Eugene F., and Kenneth R. French. 1993. “Common Risk Factors in Stock and Bond Returns.” Journal of Financial Economics 33: 3–56.
Fama, Eugene F., and Kenneth R. French. 2015. “A Five-Factor Asset Pricing Model.” Journal of Financial Economics 116 (1): 1–22, https://doi.org/10.1016/j.jfineco.2014.10.010
Fama, Eugene, F., and Kenneth R. French. 2004. "The Capital Asset Pricing Model: Theory and Evidence." Journal of Economic Perspectives, 18 (3): 25-46., http://dx.doi.org/10.2139/ssrn.440920
Frongello, Andrew S.B. 2002. “Attribution Linking: Proofed and Clarified.” Journal of Performance Measurement 7 (1): 54–67.
GRAP. 1997. “Synthèse des modèles d’attribution de performance.” Paris: Groupe de Recherche en Attribution de Performance
Henriksson, R. D., and R. C. Merton. 1981. “On Market Timing and Investment Performance II. Statistical Procedures for Evaluating Forecasting Skills.” Journal of Business 54: 513—33
Karnosky, Denis S., and Brian D. Singer. 1994. “Global Asset Management and Performance Attribution.” Charlottesville, VA: Research Foundation of the Institute of Chartered Financial Analysts.
Menchero, Jose G. 2000. “An Optimized Approach to Linking Attribution Effects over Time.” Journal of Performance Measurement 5 (1): 36–42
Mirabelli, Andre. 2000/2001. “The Structure and Visualization of Performance Attribution.” Journal of Performance Measurement 5 (2): 55–80
Peng, Huimin 2020 “Holding-based Evaluation Upon Actively Managed Stock Mutual Funds in China” Papers, arXiv.org, Post-doctor research at PBCSF, Tsinghua University. https://arxiv.org/abs/2004.05322
Pettengill, G.N., Chang, G.T., & Hueng, C. 2014. “Choosing between Value and Growth in Mutual Fund Investing.” Financial Services Review, 23, 341.
Reztsov, Andrei. 2011. “Excess Returns – Arithmetic and Geometric?” Available at SSRN: https://ssrn.com/abstract=1858937
Spaulding, David. 2003/2004. “Demystifying the Interaction Effect.” Journal of Performance Measurement 8 (2): 49–54
Spaulding, David. 2018. “Transaction- vs. Holdings-Based Attribution: The Differences Are Not So Clear but Quite Important.” Journal of Performance Measurement 22 (3): 49–76
Treynor, J., and Mazuy, K., 1966. “Can Mutual Funds Outguess the Market?” Harvard Business Review 44 (July—August):131—136.
Vashisht, C., & Gupta, M. 2014. “Asset allocation, stock selection and interaction effects: Study of concept of performance attribution in equity mutual funds.” International Journal of Business Management
Weber, Arno. 2018. “Geometric Attribution and the Interaction Effect.” Journal of Performance Measurement 22 (4): 6–19, http://dx.doi.org/10.2139/ssrn.3282191