Unit trust performance metrics: A comparison of value, growth, and ethical fund

Said, Abdel

Abstract

Empirical evidence from the mutual fund industry suggests that on average, mutual fund managers do not possess stock selection abilities. Yet, there is always the possibility that traditional performance measures are not sufficient to detect such skill. A major challenge in performance measurement is to identify an appropriate benchmark against which fund performance is evaluated. Once this has been achieved, a further challenge regards whether investors can successfully choose funds based on an ex-ante strategy to generate positive abnormal returns in the future. The main objective of this thesis is to comprehensively explore the performance of UK-equity unit trusts, with a particular focus on ethical unit trusts. After noting the many caveats in fund performance measurement, we examine whether unit trust managers are able to select stocks and generate positive style-adjusted performance. Specifically, we employ a returns-based style analysis to identify funds’ exposures to four key benchmark factors; small-value, small-growth, big-value, and big-growth. We then classify funds on the basis of their return attributes and draw a conclusion on the relationship between investment style and fund managers’ stock selection skill. Next, we move to examine whether investors are able exploit an ex-ante investment style strategy to generate positive abnormal returns in the future. Using event study methodologies, we investigate the profitability of investment strategies that could be achieved by systematically buying units in funds with specific investment style objectives over an investment horizon of a one to five-year period. Finally, we deal with the data mining bias to assess whether fund managers performance can be attributed to luck or skill.

• Thesis Type: Thesis
• Deposit Date: Aug 23, 2021
• Publicly Available Date: May 9, 2022
• Public URL: https://uwe-repository.worktribe.com/output/7667929
• Award Date: May 9, 2022