Cross-sector fund performance comparison: the role of real estate mutual funds

We firstly examine the performance of active sector funds as a whole as equal- and value-weighted portfolios, against a stock market benchmark (Carhart four-factor model), an associated sector market benchmark, and the combined five-factor model benchmarks. We consider the gross and net returns to show the impact of expenses on performance. We also employ the residual bootstrap approach for portfolios to separate genuine skills from luck. We also look into individual sector fund managers, to examine the proportion of truly skilled sector fund managers after false discoveries have been controlled using false discovery rate (FDR) approach. Among all 13 sectors, most sector fund managers on average cannot add enough to cover expenses irrespective of benchmarks. We find mediocre performance on real estate mutual funds (REMFs), comparing with funds of other sectors. Weak evidence of outperformance relative to sector index is found in sectors of gold, and consumer services, even after deduction of expenses. Healthcare and technology sectors, as a whole, can marginally beat the stock market. When the combined sector and stock market benchmark is employed, funds of health care and technology oriented sectors overall can still outperform after costs. Finally, at each sector fund level, we implement joint test to control false discoveries from false positive-alpha funds, and find limited proportion of skilled sector fund managers, after costs.