€Žperformance Of Israeli Mutual Funds: €Žequity And Bond Funds

This paper examines the performance of mutual funds in Israel between 2003 and 2008. ‎Almost all of the funds active during all or part of this period were examined. (The following funds were not included in the sample: ‎money market funds, tracking funds, Israeli funds of funds, foreign funds of funds, and “taxable funds".) ‎The funds’ performances were examined by comparing them to benchmarks which were built using regressions of the funds’ yields as compared with: ‎the CPI-Indexed Government Bonds Index; the Government Shekel Bonds Index; the CPI-Indexed Corporate Bonds Index; the General Shares Index; the MSCI World Index, and the shekel return on dollar-linked interest investments. ‎The funds were grouped according to their classifications into three investment categories, all of which showed annualized underperformance: government bonds – -2.08 percent; corporate bonds – -3.35 percent; non-bond (mostly share) funds – -3.62 percent. ‎Such underperformance, which is statistically significant, was also found when the period was divided into sub-periods. ‎The main reason for the underperformance is the management fees charged by the funds, although underperformance was found even before deducting management fees: ‎government bonds – -0.69 percent; corporate bonds – -1.72 percent; non-bond (mainly share) funds – -1.00 percent. ‎The underperformance before deducting management fees (gross) is not statistically significant. ‎These calculations were made using a simple averaging of fund yields in each investment category. ‎The weighting of the yields according to the funds' market capitalization does not materially change the results. ‎It was found that there is a persistence that is not high in the performance of mutual funds by fund manager—every 1 percent of excess yield between 2003 and 2005 explains about 0.28 percent of the excess yield between 2006 and 2008.