Mutual fund performance: An empirical decomposition into stockpicking talent, style, transactions costs, and expenses (2000)
| Venue: | Journal of Finance |
| Citations: | 63 - 6 self |
BibTeX
@ARTICLE{Wermers00mutualfund,
author = {Russ Wermers},
title = {Mutual fund performance: An empirical decomposition into stockpicking talent, style, transactions costs, and expenses},
journal = {Journal of Finance},
year = {2000},
volume = {55},
pages = {1655--1695}
}
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Abstract
We use a new database to perform a comprehensive analysis of the mutual fund industry. We find that funds hold stocks that outperform the market by 1.3 percent per year, but their net returns underperform by one percent. Of the 2.3 percent difference between these results, 0.7 percent is due to the underperformance of nonstock holdings, whereas 1.6 percent is due to expenses and transactions costs. Thus, funds pick stocks well enough to cover their costs. Also, high-turnover funds beat the Vanguard Index 500 fund on a net return basis. Our evidence supports the value of active mutual fund management. DO MUTUAL FUND MANAGERS WHO actively trade stocks add value? Academics have debated this issue since the seminal paper of Jensen ~1968!. Although some controversy still exists, the majority of studies now conclude that actively managed funds ~e.g., the Fidelity Magellan fund!, on average, underperform their passively managed counterparts ~e.g., the Vanguard Index 500 fund!. 1 For example, Gruber ~1996! finds that the average mutual fund underperforms
