Predicting Emerging Market Mutual Fund Performance

Abstract

This article examines the ability of well known mutual fund characteristics, including the expense ratio, turnover, fund size, recent past performance, manager tenure, and Morningstar mutual fund star ratings, to predict emerging market mutual fund performance. We form three separate samples of emerging market mutual funds, adjust the returns for loads, and employ three methods to adjust for survivorship bias. We find that the expense ratio is the only fund characteristic that consistently predicts future fund performance. Specifically, emerging market funds with lower expense ratios predict better future fund performance. We also find some limited evidence that passive management outperforms active management in emerging market funds.

TOPICS: Emerging markets, mutual funds/passive investing/indexing, performance measurement