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Mutual Fund Returns and Their Characteristics: A Simple Approach to Selecting Better Performing Actively-Managed Funds

Burton G. Malkiel and Atanu Saha
The Journal of Investing April 2020, 29 (3) 63-75; DOI: https://doi.org/10.3905/joi.2020.1.117
Burton G. Malkiel
is the Chemical Bank Chairman’s Professor of Economics, Emeritus at Princeton University’s Bendheim Center for Finance in Princeton, NJ
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Atanu Saha
is managing director at Econ One Research Inc. in White Plains, NY
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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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The Journal of Investing: 29 (3)
The Journal of Investing
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April 2020
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Mutual Fund Returns and Their Characteristics: A Simple Approach to Selecting Better Performing Actively-Managed Funds
Burton G. Malkiel, Atanu Saha
The Journal of Investing Mar 2020, 29 (3) 63-75; DOI: 10.3905/joi.2020.1.117

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Mutual Fund Returns and Their Characteristics: A Simple Approach to Selecting Better Performing Actively-Managed Funds
Burton G. Malkiel, Atanu Saha
The Journal of Investing Mar 2020, 29 (3) 63-75; DOI: 10.3905/joi.2020.1.117
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    • STUDIES OF FUND RETURNS
    • THE DATASET AND SUMMARY STATISTICS
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