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Investment choice and performance potential in the mutual fund industry

Zeno Adams, Roland Füss & Volker Wohlschieß

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abstract This article investigates the performance potential of a set of three investment choices: multi-asset, multi-management and multi-instrument. These approaches have been used recently in the asset management industry to give investors access to an extended investment universe, and to provide higher risk-adjusted returns to clients. In this context, we evaluate each investment choice's overall contribution to portfolio performance. Using bootstrapping simulations and a set of performance measures over a 20-year sample, we show that: 1. extending the typical equity- and bond-focused fund to a set of five asset classes increases the Sharpe ratio by 50 per cent on average, 2. allowing for third-party funds in a client's portfolio significantly reduces company-specific risk, and 3. including single assets leads to an increased return potential for skilled portfolio managers. Thus, our empirical results suggest that investments in actively managed mutual funds are likely to benefit significantly from these multi-investment approaches, and that the current practice of providing investors with balanced in-house funds is suboptimal.
   
type journal paper
   
keywords Portfolio management; investment strategies; performance evaluation; mutual funds; bootstrapping.
   
language English
kind of paper journal article
date of appearance 4-2012
journal Journal of Asset Management
publisher Henry Stewart Publications (London UK)
ISSN 1470-8272
DOI 10.1057/jam.2012.1
volume of journal 13
number of issue 02/2012
page(s) 84-101
review not reviewed
   
citation Adams, Z., Füss, R., & Wohlschieß, V. (2012). Investment choice and performance potential in the mutual fund industry. Journal of Asset Management, 13(02/2012), 84-101, DOI:10.1057/jam.2012.1.