Mutual Fund Performance and the Impact of Regulatory Constraints

The mutual fund industry is a popular research field which gained a lot of traction since the decade of 1990. Numerous research papers have covered the performance of these companies from different perspectives, showing that they tend to underperform most of their given benchmarks due to factors such as fees and expenses. In the latest years the focus has switched to the global industry, and the socially responsible funds. However, the mutual fund regulatory framework and their portfolio selection methods remain mostly unexplored. In this chapter, we will attempt to shed light about this problem in order to see if the regulations provide a solid foundation for a more profitable investment by simulating multiple portfolio selection scenarios, where the asset weights are constrained by the mutual fund investment policies from regions like Canada, Europe or the United States. Our results show that overall, the constrained portfolios are mostly on par or more efficient than their unconstrained peers, and that an interval of seven years may be a great time span to use a mutual fund-like strategy, as the restricted sets tend to perform much better during the longer terms, as well as during crisis periods.