New Evidence on Mutual Fund Performance: A Comparison of Alternative Bootstrap Methods
David Blake, Tristan Caulfield, Christos Ioannidis & Ian Tonks
This paper compares the two bootstrap methods of Kosowski et al. (2006) and Fama and French (2010) using a new dataset on equity mutual funds in the UK. We find that: the average equity mutual fund manager is unable to deliver outperformance from stock selection or market timing, once allowance is made for fund manager fees and for a set of common risk factors that are known to influence returns; 95% of fund managers on the basis of the first bootstrap and almost all fund managers on the basis of the second bootstrap fail to outperform the zero-skill distribution net of fees; and both bootstraps show that there are a small group of “star” fund managers who are able to generate superior performance (in excess of operating and trading costs), but they extract the whole of this superior performance for themselves via their fees, leaving nothing for investors.
Keywords: mutual funds, unit trusts, open ended investment companies, performance measurement, factor benchmark models, bootstrap methods, stochastic dominance