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Efficiency in Portfolio Management of Equity Funds and Methods of Its Evaluation
[Эффективность Управления Портфелями Паевых Инвестиционных Фондов Акций И Ее Оценка]

Author

Listed:
  • Abramov, Alexander E. (Абрамов, Александр)

    (Russian Presidential Academy of National Economy and Public Administration)

  • Radygin, Alexander D. (Радыгин, Александр)

    (Russian Presidential Academy of National Economy and Public Administration, Gaidar Institute for Economic Policy)

  • Chernova, Maria I. (Чернова, Мария)

    (Russian Presidential Academy of National Economy and Public Administration)

Abstract

The paper discusses the key problems of information transparency of mutual funds which impede their development in the domestic financial market. In Russia, open-end mutual funds have not yet fulfilled their potential for retail investors. Earning the trust of private investors for them is complicated by a lot of unsolved problems. The most severe ones relate to the level of transparency and accessibility of information. We analyze some restrictions imposed on efficiency evaluation of equity funds by their investments in foreign financial instruments, the weakness of the benchmarks, and non-transparent information about the investment strategies. The multifactor asset pricing model tailored to the domestic stock market was used as an additional method of evaluating risks and returns of the equity funds. We rationalize that these models allow for internationally standardized analysis of fund performance and can identify fundamental factors which generate sustainable excess return. Our study revealed significant exposure of excess return of the funds to the broad market index and the small-cap equity premium. Since the 2008 financial crisis, the significance of the factor models for fund returns has tended to decline as a result of an increase of foreign assets share in fund portfolios and outflows of foreign investors from the Russian stock market. Using different examples of portfolio composition from the equity funds, we show that, under certain conditions, some methods of portfolio rebalancing combined with information on past performance allow investors to gain an excess return.

Suggested Citation

  • Abramov, Alexander E. (Абрамов, Александр) & Radygin, Alexander D. (Радыгин, Александр) & Chernova, Maria I. (Чернова, Мария), 2019. "Efficiency in Portfolio Management of Equity Funds and Methods of Its Evaluation [Эффективность Управления Портфелями Паевых Инвестиционных Фондов Акций И Ее Оценка]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 4, pages 8-47, August.
    • Handle: RePEc:rnp:ecopol:ep1925
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    References listed on IDEAS

    as
    1. K. J. Martijn Cremers & Antti Petajisto, 2009. "How Active Is Your Fund Manager? A New Measure That Predicts Performance," The Review of Financial Studies, Society for Financial Studies, vol. 22(9), pages 3329-3365, September.
    2. Martijn Cremers & Antti Petajisto, 2006. "How Active is Your Fund Manager? A New Measure That Predicts Performance," Yale School of Management Working Papers amz2370, Yale School of Management, revised 01 May 2009.
    3. Cremers, Martijn & Petajisto, Antti & Zitzewitz, Eric, 2013. "Should Benchmark Indices Have Alpha? Revisiting Performance Evaluation," Critical Finance Review, now publishers, vol. 2(1), pages 1-48, July.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    asset pricing model; CAPM; growth stocks; value stocks; momentum; stock liquidity; foreign portfolio investors; factor investing; financial market; mutual funds;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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