Abstract
Using a survivorship bias-free dataset set of over 4,300 actively-managed US equity and international equity funds for the period 2000–2018, the authors examine whether funds chosen based on various fund characteristics in a given year can yield superior performance the following year. The authors find that a portfolio of funds chosen based on the combination of characteristics of lowest expense ratio, and lowest turnover and highest Sharpe ratio, generates considerably better future performance than the average actively-managed fund, and the difference in returns is statistically significant.
TOPICS: Portfolio theory, portfolio construction, style investing, performance measurement
Key Findings
• Actively-managed mutual funds with lower expense ratios provide higher returns in the following year.
• But considerably better returns are achievable from low-expense funds with low portfolio turnover and high Sharpe ratios.
• There is sufficient persistence in cost and risk-control characteristics that investors can obtain better long-run results using the selection criteria proposed.
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