Swedish(Equity(Mutual(Funds( :(( Performance,(Persistence(and(Presence(of(Skill (

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1 Swedish(Equity(Mutual(Funds( :(( Performance,(Persistence(and(Presence(of(Skill ( HarryFlam InstituteforInternationalEconomicStudies,StockholmUniversity,andCESifo RoineVestman DepartmentofEconomics,StockholmUniversity,andSIFR September,2014 Abstract( AveragegrossexcessreturnsofactivelymanagedSwedishequitymutualfundsdecreased substantiallyaround2001j2002.averagegrossandnetexcessreturnswerej0.22andj1.47per centperyearin2002j2013.thereislittleornopersistenceinreturns.whenfundsareranked onpastperformance,theirreturnsconvergetothecrossjsectionalmeaninabouttwoyears andstayclosetothatsubsequently.inaddition,actualgrossexcessreturnsdonotdiffer significantlyfrombootstrappedexcessreturnsthatarezerobyconstruction.therefore,thereis practicallynoevidenceofstockjpickingskills.selectedindexfundscanbeexpectedto outperformactivelymanagedfunds.( WearegratefultoHannaMühlradforresearchassistance,toMoneyMateandMorningstarforreturndata,to thedatacenterattheswedishhouseoffinance,andinparticularerikeklund,fortheprovisionofstockmarket andcompanydata,and,withoutimplication,toseminarparticipantsattheswedishhouseoffinance.

2 1.Introduction SwedishhouseholdsinvestheavilyinSwedishequityfunds,i.e.equityfundsthatprimarilyfocus ontheswedishstockmarket.thereareseveralchannelsthroughwhichhouseholdsare exposedtothesefunds.first,70percentofallhouseholdsholdstocksorequityfunds,anda thirdofthosehouseholdsinturnholdaswedishequityfund. 2 Second,practicallyallSwedish wageearnersownsharesinmutualfundsthroughamandatorydefinedcontributionpension planinthepublicpensionsystem.alhhoughtheplanisanopenplatformwithamenuofas manyas800fundstochoosefrom,28percentoftheinvestorsholdaswedishequityfund, whichmeansthat13percentoftheplan sinvestmentsareallocatedtoswedishmutualequity funds,aportfoliosharemuchhigherthanwarrantedbysweden sshareofglobalmarket capitalization. 3 Finally,90percentofSwedishwageearnersholdadditionalinvestmentsin occupationalpensionplanswhichareheavilyexposedtowardsswedishequityfunds.the marketvalueofswedishhouseholds totalinvestmentsinthesefundswasaboutsek360 billionin2013,theequivalentoftenpercentofgdp. 4 Consequently,thechoicebetween differentswedishequitymutualfundsmaybequiteimportantformanyswedes. Mostinvestorsinequitymutualfundspresumablyhavelittleornoknowledgeaboutthe equitiesthatfundshold;theysimplywanttohaveexposuretothestockmarket.whenthe financialindustryormediaexpertsgiveadvicetoinvestorsonthechoiceoffunds,they frequentlyrecommendactivelymanagedfundswithrelativelyhighpastperformance,basedon thebeliefthathighperformancecanbeattributedtostockpickingskillandthatsuchskillis persistent.incontrast,whenafinanceresearcherisaskedforadvice,heorsheislikelyto recommendalowjcostindexfund,basedontheefficientmarkethypothesisthatactivelyand passivelymanagedfundscanbeexpectedtoearnthesamereturnasthestockmarketbefore cost,butthelatterareexpectedtodosoatlowercost. MostoftheempiricalevidencebasedondataontheU.S.mutualfundmarketsupports theefficientmarkethypothesis.carhart(1997)findsthatmostfundsunderperformbyabout themagnitudeoftheirinvestmentexpenses,kosowskietal.(2006)thattheaveragenetriskj 2 TheaveragevalueofstocksandmutualfundsinregularsavingsaccountswasSEK223,000in2007.Ofthat,SEK 16,900(7.6percent)wasinvestedinSwedishequityfunds.Thisisasidefrominvestmentsinprivatepensionplans andlifeinsuranceproducts.weusethemicrodatasetlinda,wave2007,matchedwithdetailedassetsholdings tomakethiscomputation. 3Employersmakecontributionstotheplanequalto2.5percentofgrosswages.Basedonhistoricalratesof return,thefundedpartofthepublicpensionsystemmaycometocontributeasmuchtowageearners public pensionsasthenonjfunded,transferpartofthesystem.ourcalculationisbasedonthelinda2007samplefor whichwehaveaccesstodetailedinformationaboutthefundholdingsofthepensionplan.wehaveexcluded investmentsintotheplan sdefaultfundfromthiscalculation. 4 SwedishInvestmentFundAssociation,TheSwedishFundMarketinFigures, 1

3 adjustedexcessreturnperyearisj1.2percent,famaandfrench(2010)thatitis 1percent, Barrasetal.(2010) 0.5percent,andBerkandBinsbergen(2012) 0.7percent. Despitethefactthatinvestmentinmutualfundsismorewidespreadamonghouseholds inswedenthaninmostcountries,thereislittleevidenceontheperformanceofswedishequity mutualfunds.onlytwostudies,bothbasedonfundperformanceduringafewyearsinthe 1990 s,havebeenpublishedand,forthetimeperiodtheycover,theresultsareatoddswith thefindingsfortheu.s.market.thefirststudy,bydahlquistetal.(2000),findsthatfunds qualifyingforthepreferentialtaxtreatmentthatexistedatthetimehadnegativeaverageand mediannetexcessreturnsof 1and 0.7percent,andthatfundswithoutpreferentialtax treatmenthadpositivebutinsignificantaverageandmedianexcessnetreturnsof0.5and0.1 percentperyear.thesecondstudy,byengström(2004),findsanaveragenetexcessreturnof 1.7percent. Ourstudycoverstheperiod1993J2013.Splittingthesampleintwohalves,wefindthat excessreturnsdiffersubstantiallybeforeandafter2001j2002.in2002j2013,averagegrossand netexcessreturnswere 0.18and 1.47percentperyear.Thedeclineinreturnscouldbe explainedbyafortuitousbiastowardsitjstocksinthe1990 sandbygreatercompetition subsequently thenumberoffundsdoubled.wearguethatinferencesabouttheperformance oftoday sstockmarketshouldbebasedonthelatersubperiod,2002j2013. Thetoptenfundsplustwomore(of113)in2002J2013hadsignificantpositivegross excessreturns.thisisconventionallyinterpretedasevidenceofstockjpickingskill,butcould alsobeduetoluck.afew,fiveofthetopsevenfunds(of124),weresufficientlyskilledorlucky toearnsignificantpositivenetexcessreturn.theywereinotherwordsabletomorethan compensateinvestorsformanagementcosts. Wealsoestimateexcessreturnsofindexfundsrelativetotheirrespectivebenchmarks. Justasforactivelymanagedfunds,thereisadrop butsmaller inexcessreturnsbeforeand after2001j2002.theaveragegrossandnetexcessreturnsinthelatterperiodwere 0.22and 0.84percent. Asafirsttestofthepresenceofskillinfundmanagement,weanalyzethepresenceof persistenceinfundreturns.persistenceisofteninterpretedasanindicationofskill.however, wefindlittleevidenceofpersistenceinreturnsandconsequentlylittletoindicatethepresence ofskill.regardlessofwhetherfundsrankhighorlowbasedonpastperformance,theirreturns convergequicklytothecrossjsectionalmeanandbecomesimilaraftertwoyears.thisaccords wellwiththefindingsofcarhart(1997)foru.s.equitymutualfunds,exceptthathefindsthat thebottomdecileoffundsunderperformspersistently. 2

4 Thepresenceofpersistenthighreturnsmayindicatethepresenceofskill,butitcanalso betheoutcomeofluck.wemakeadirectinvestigationofwhethersuperiorandinferior performanceshouldbeattributedtosuperiorandinferiorskillortogoodandbadluckby employingaversionofthebootstrapmethodinkosowskietal.(2006)andfamaandfrench (2010).SimulatedcrossJsectionaldistributionsofgrossandnetreturnsarecreatedrepeatedly underthenullhypothesisthatgrossandnetexcessreturnsarezero.thecrossjsectionof(thetj statisticsof)actualgrossandnetreturnsisthencomparedtothecrossjsectionof(thetj statisticsof)simulatedgrossandnetreturns.tjstatisticsofexcessreturnsisthepreferredtest statisticratherthanexcessreturnstoaddressvariousstatisticalproblems,butweshowboth. Wefindthatonlyonefundhasactualgrossexcessreturnsthataresignificantlyhigherthanthe bootstrappedgrossexcessreturnsintheperiod2002j2013,inotherwords,thereisverylittle evidenceofskill.nofundhadasignificantpositivenetexcessreturn. 2.Datasourcesanddataconstruction Ourfunduniverseconsistsof124activelymanagedmutualfundsholdingabroadsetof equitiesofcorporationslistedonthestockholmstockexchange,plus20passivelymanaged fundstrackingavarietyofindexesrelatedtothestockexchange.specializedfunds,forexample fundsthatinvestinspecifiedindustries,areexcluded.itshouldbenotedthatsomefundsmay haveasmallshareoftheirassetsinequitieslistedabroadandthatfundsmustholdaminimum amountofliquidityfortransactionpurposes;theamountcanvaryovertime. OurperiodofinvestigationisJanuary1993toDecember2013.Theminimumnumberof consecutivemonthlyreturnsrequiredforafundtobeincludedis36. 5 Fundsthatmeetthe requirementbuthavebeenclosedandmergedwithotherfundsareincludedtoavoidsurvival bias. ThedataonmonthlynetfundreturnsweresuppliedbyMorningstarandarebasedon primarydatasuppliedbytheswedishinvestmentfundassociation.fundreturnsincluderej investeddividendsandarenetofexpenses.somefundsaresoldbothintheretailmarketand inthemarketforvariouspensionplans.insuchcases,onlythedatapertainingtotheretail marketareincluded. Grossreturnsareobtainedbyaddingbackcostsasgivenbythetotalexpenseratio (TER)tonetreturns.TERisreportedannuallytotheSwedishFinancialSupervisoryAuthorityby 5 Weexclude28activelymanagedfundsand5indexfundsthathave35orfewerreturnobservations. 3

5 mostbutnotallfunds. 6 WehaveobtainedTERfromtheannualfinancialstatementsfor114out of124funds. 7 Toobtaingrossreturns,weaddbacktheaverageTERfortheyearsforwhichwe havedata. Ouranalysisisbasedon1Jfactorexcessreturns.Datafortheconstructionofsystematic riskfactors valueversusgrowthbiasandsmallversuslargecapbias areunfortunatelynot availableafter2009.tocheckforpotentialdifferencesbetween1jfactorexcessreturnsonone handand3jand4jfactorexcessreturnsontheother,wehave,however,estimated3jand4j factorexcessreturnsfortheperiod1999j2009andcomparedthemwithestimated1jfactor excessreturns. 8 3.Performance TheCAPM,the3JfactormodelbyFamaandFrench(1993)anditsextensiontofourfactorsby Carhart(1997)areconsistentwithmodelsofmarketequilibriumwithone,threeorfour systematicriskfactors.theycanalsobeinterpretedasmodelsforperformanceattribution;we willusethemassuch. ThefollowingtimeseriesregressionsattributereturnsinexcessoftheriskJfreeinterest ratetoone(capm),three(famaandfrench)andfour(carhart)systematicriskfactors respectively: 6 WenotethattheSwedishmeasureoftotalexpenses,TKA,ismoreinclusive.Inadditiontofeesandtradingcosts, italsoincludescommissionsandresultsjbasedfeesinpercentoftheaveragevalueofassetsundermanagement duringtheyear.theterforthe114fundsforwhichwehavedatais1.3anditis1.6percentforthetka. 7 OursampleincludessomefundswhicharedomiciledabroadandthatthereforedonotreportTERandTKA.Five fundsareregisteredinluxembourg,oneinnorway,oneinireland,oneingreatbritainandtwohavenodomestic jurisdiction(isincode)reportedinthedataset. 8 ThedatawerekindlydeliveredbytheDataCenterattheSwedishHouseofFinance.Theywereoriginally constructedbysixtelekursbefore2004andbynasdaqomxfortheperiod2004j2009.weconstructthesize (SMB)andvalue(HML)factorsofFamaandFrench(1993)andofCarhart s(1997)momentum(mom)factoras follows.wefirsttakeaccountofthefactthatswedenhasamultipleshareclasssystem.foreachcorporation,we determinethelargestshareclassintermsofmarketvalueanduseonlythatclass.wethenattributetheentire marketvalueofthecorporationtothisclass.foreach12jmonthperiodstartinginaprilofyeart"1andendingwith Marchofyeartwerequire12recordedmonthlyobservations.Wethenmatchthebookandmarketvaluesfrom MarchofyeartwiththereturnseriesfromAprilofyearttoMarchofyeart"1.Wealsocontrolforwhichparticular stockmarketlistthatthestockwastradedonindecemberofyeart"1byexcludingstockmarketsthatarejudged tobetoosmallandilliquidtobesuitableasinvestmenttargetsforamutualfund. 8 TheSMBandHMLfactorswere thenconstructedasinfamaandfrench(1993).themomfactorwasconstructedbyfirstsortingallstocksontheir 12Jmonthlaggedreturns,andthenusingthebottom20percenttoconstructaportfoliotogoshortin,andthetop 20percenttoconstructanotherportfoliotogolongin.Betermieretal.(2013)alsoconstructtheirfactorsfromthis material. 4

6 "#$%&1 = + ("#$%# "#$%&1) + (1) "#$%&1 = + "#$%# "#$%&1 + "# + "# + (2) "#$%&1 = + "#$%# "#$%&1 + "# + "# +" + (3), where$ =, isthegrossornetreturnoffundi$attimet$(fundandtimesubscriptsare omitted),stibor1m$isthestockholm1jmonthinterbanklendingrate,αisthenetexcessreturn (thereturnleftunexplainedbythebenchmarkmodel),β,, andarefactorloadings, "#$%#isavaluejweightedindexforallcompanieslistedonthestockholmstockexchange, includingreinvesteddividends,wheretheweightofasinglecompanyisrestrictedtoreflect UCITregulationsthatappliestomutualfundportfolios,"#isourSwedishversionofthe HighJMinusJLowbookJtoJmarketvaluefactor,"#isourSwedishversionoftheSmallJMinusJ Bigmarketcapitalizationfactor,"isourSwedishversionofCarhart smomentumfactor, whichislongonpriorjyearwinnersandshortonpriorjyearlosers,andistheregression residual. 9 Equation(1)isestimatedforallactivelymanagedequitymutualfundswithaminimum of36monthlyreturnobservationsfortheperiodjanuary1993 December2013.Forindex funds,weestimateequation(1)usingtheirrespectivebenchmarkindexesandnotthesixprx index.requiringaminimumreturnhistoryof36monthsmeansthatwehavepracticallyno survivalbiasinourestimates,butalsothatestimatesfortheshortestjlivedfundstendtohave lowerprecision.equations(1) (3)areestimatedfortheperiodJanuary1999 December2009 foractivelymanagedfunds.grossreturnsarecomputedbyaddingtheaverageterofthefund totheestimatednetexcessreturn. 3.1Activelymanagedfunds ConsiderfirstthetimeseriesshowninFigure1.ThedashedlineshowstheSIXPRXindexand thesolidlinethethreejyearmovingaverageofmonthly1jfactornetexcessreturns(netalphas) ofallactivelymanagedswedishequitymutualfunds. 10 Itisclearthatthetimeseriesoffundnet excessreturnsexhibitsasharpbreakaround2002.beforethebreak,netexcessreturnsare 9 ThereiscontroversyaboutwhethertheaverageSMB,HMLandMOMreturnsarerewardsforriskortheresultof mispricing.regardless,itremainstruethatfundmanagerscanimplementpassivestrategiestocapturereturnsto sizeandvaluebiasandtomomentum,andthatstockjpickingability,i.e.activemanagement,shouldshowupin theintercept(alpha). 10 TakingthethreeJyearmovingaverageinsteadofashorterperiodsuchastheoneJyearaverageeliminatesmuch noise. 5

7 positiveandvaryaround2.5percentperyear,andafterthebreaktheyvaryaround 1.5per cent.theindexdoesnotshowasimilarbreak;ittakesadivein2000j2002,butreturnsto nearlythepreviouslevel. [FIGURE1] Onemayspeculateaboutthereasonsforthebreakinnetexcessreturns.Wearguethat twofactorscombinetoprovideatleastapartialexplanation:abiastowardsitjstocksinfunds portfoliosbeforethecrashin2000,andmuchgreatercompetitionamongfundsafterthe break,duetoagreatincreaseinthenumberoffunds.ourdatasetincludesatotalof60 activelymanagedfundsin1993j ,and124fundsin2002J2013.Theincreasewasprobably causedbythelaunchofthenewpensionsystemin2000,inwhichemployershavetomake contributionsequalto2.5percentofgrossincometothefundedpartofthepensionsystem andemployeescanchoosetoinvesttheircontributionsamonghundredsoffunds. Whateverthereasonsforthebreakinthetimeseriesofnetexcessreturns,itwouldbe misleadingtomakeinferencesabouttoday sperformance,persistenceandpresenceof managementskillbasedondataforthewholetimeperiod.wearguethattherearestrong reasonstobelievethatthemarketforactivelymanagedswedishequitymutualfundschanged fundamentallyaround2001j2002,andthatinferencesaboutthepresentstateofthe performanceoftheswedishequityfundindustryshouldbebasedonthelaterperiod.the choiceofyeartosplitthetimeseriesissomewhatarbitrary;wechoosetodividetheperiodinto 1993J2001and2002J2013. Beforeturningtoestimatesoffundperformance,considersomedescriptivestatisticsin Table1.TheequallyJweightedaverageabsolutenetreturn withoutriskadjustment of activelymanagedfundswas21.75percentin and9.13percentin SincetheaverageTERwas1.3percent,seeTable2,thismeansthatthegrossabsolutereturn washigherthanthestockmarketaverageincludingreinvesteddividends(sixprx)by3.2per centin ,butaboutthesameasthestockmarketaveragein2002J2013. [TABLE1][TABLE2] Table3reportsequalJweightedgrossandnetreturnsabovetheriskJfreeinterestrate andadjustedformarketrisk 1Jfactorgrossandnetexcessreturns ofactivelymanaged fundsasgivenbyestimatedalphasinequation(1). [TABLE3] 11 Dahlquistetal.(2000)include40equityfundswithpreferentialtaxtreatmentand80regularequityfundsin theirsample,whichcoversthetimeperiod1993j1997.weincludenofundswithpreferentialtaxtreatment. 6

8 RiskJadjustedexcessreturnsgivethesamepictureasabsolutereturns:riskJadjusted grossandnetexcessreturnsweresubstantiallypositivein butturnednegativein Theaveragegrossexcessreturnisclosetozerointhelaterperiodandthe underperformanceintermsofnetexcessreturnsisapproximatelyequaltotheaverageter. Thisaccordswellwiththeefficientmarkethypothesis. Table3alsoreportsexcessreturnsforcrossJsectionallyrankeddecilesoffundsandfor topandbottomfunds.thevariationinreturnsacrossdecilesislarge,particularlyintheearlier period,anditisevenlargeracrossindividualfunds.thegrossandnetexcessreturnsofthetop decilein weremorethan10percenthigherthanthatofthebottomdecileof funds,andthegrossandnetexcessreturnsofthetopfundinthesameperiodwereabout22 percenthigherthanthatofthebottomfund.wealsoplotperformanceinfigure2usinga naïveapproachtothemeasurementofoverjandunderperformance.thefigureshows whetherestimatedgrossandnetexcessreturnsaresignificantlydifferentfromzeroatthetwoj sided90percentconfidencelevel. 12 Ascanbeseen,anumberoffundsexhibitsuperior performanceintermsofbothgrossandnetexcessreturnsinthefirstsubperiod,butfewdoso inthesecond.twelveof113fundshavesignificantlypositivegrossexcessreturnsandfiveout of124havesignificantlypositivenetexcessreturnsin2002j2013. [FIGURE2] AlthoughFigure2accuratelydepictsthecrossJsectionaldistributionofnetexcess returns,itisnaïvewithrespecttotheconstructedconfidenceintervals.statisticallysignificant superiororinferiorperformancemaybeduetosuperiororinferiormanagementskillordueto goodorbadluck.infact,inanycrossjsectionoffundreturnstherewillbedispersion, suggestingthatsomefundsoverperform.ouranalysisofperformancepersistenceinthenext sectionandourbootstrapofentirecrossjsectionsoffundsinthesubsequentsectionattempts todetermineifandtowhatextentfundmanagerspossessskillinpickingstocks. Lackofstockdataforlateryearspreventsusfrombasingouranalysisonexcessreturns thatareadjustedformoresystematicriskfactorsthanmarketriskforthefulltimeperiod. However,thenecessarydata,whichneedtoaccountforSweden smultipleshareclasssystem, isavailablefrom1999to2009.tohaveanideaofwhetherfundperformanceislikelytobe substantiallydifferentwhenaccountistakenofmorethanmarketrisk,acomparisonbetween 1J,3Jand4Jfactorexcessreturnsforthe1999J2009periodismadeinTable4.Lookingat averageperformanceandtheperformanceoftopandbottomdecilesoffunds,itisclearthat performanceissomewhatbetteringeneralwhenmoreriskfactorsareaccountedfor, 12 Theconfidenceintervalwasformedunderthestandardassumptionsofindependentandhomoscedasticerrors. CorrectingforautocorrelationusingNeweyJWeststandarderrorsmatterslittle. 7

9 especiallywhenamomentumfactorisaddedtothefamajfrenchhighjversusjlowbookjtoj marketvalueandsmalljversusjbigmarketcapitalizationriskfactors.theaverage4jfactorgross andnetexcessreturnsare20j25basispointshigherthanthe1jfactorreturns,andthepositive tailofthe4jfactordeciledistributionissomewhattotherightof1jfactordistribution. [TABLE4] 3.2Indexfunds Wehavemonthlyreturnsforfiveindexfundsinthesubperiod1993J2001withaminimumof 36observations,andfor20fundsinthesubperiod2002J Thefundstracksixdifferent indicesforstockslistedonthestockholmstockexchange.byusingsuitableproxiesforsomeof thestatedbenchmarkindices,weareabletoreducethenumberofbenchmarkstothree: SIXPRX,whichtracksallcompanieslistedontheexchange,includesdividendsandcapsweights inaccordancewithucits,six30rx,whichtracksthe30largestcompaniesintermsofturnover andincludesdividends,andomxsbcapgi,whichtracksthe71largestcompaniesintermsof freefloatmarketcapitalization,includesdividendsandcapsweightsinaccordancewith UCITS Investorsshouldexpecttoreceiveareturnequaltothatofthebenchmarkincluding dividendsandminusmanagementcosts.thisisrarelythecasebecauseoftrackingerror. Trackingerrorcandependonanumberofdifferentfactors,suchasthetimingandfrequencyof adjustingindexweights,thehandlingofinflowsandoutflows,andthemethodofreplicating thebenchmark.fundsholdingstocksgenerateincomebylendingstockstemporarilyto investors.thus,thereareseveralreasonsforwhythetrackingerrorcanbebothpositiveand negative.costscanalsovarygreatlybetweenfunds.theydependonmanagementstyleand importantlyonfundsize thereareconsiderableeconomiesofscaleinfundmanagement.for largerfunds,itiscosteffectivetoobtainindexreturnsbyholdingthecomponentstocks,for smallerfundstoreplicatetheindexbyholdingindexfutures. 13 Wehaveincludedexchangetradedfunds(ETSs)ingeneral,butexcludedtwothatareleveraged. 14 ThebenchmarkindexforeachfundisreportedinTable6. 15 Onemanagementcompanyofanindexfunddoesnotchargeanyfeebutinsteadappropriatesdividendreturns. Itisevaluatedagainstitsstatedbenchmarkandthedividendreturnistreatedasafee. 8

10 Table5reportsequalJweighted1Jfactorgrossandnetexcessreturnsofeachindexfund againstitsbenchmark. 16 Apositiveornegativegrossexcessreturn apositiveornegative trackingerror meansthatthefundhasperformedbetterorworsethanitsbenchmark. [TABLE5] Performancein1993J2001shouldbedisregarded,bothbecauseofthefewnumberof fundsandbecauseoftheimprobableabnormalreturnsofthetopfund,whichdistortsthe average.lookingatthesubperiod2002j2013,wefindthatindexfundsonaveragehada negativegrossexcessreturn(equaltoanegativetrackingerror)of 0.22percentperyear. Mostfundshaveanegativetrackingerrorandthreehaveanegativetrackingerrorof61basis pointsormore.lookingatnetexcessreturns,wefindthatindexfundshaveanegativenet excessreturnof 0.84percentperyearinthesameperiod.Thetopfundhaspositivenet excessreturnwhichisequaltoitsgrossexcessreturn;itchargesnofeeanddeductsnocosts fromgrossreturns.theverynegativenetexcessreturnofthebottomfundisexplainedbythe factthatitexpresslygaveinvestorsbenchmarkreturnsexcludingdividends,butdidnotcharge anexplicitfee. 4.Persistence Financialadviceoninvestinginmutualfundsisoftenbasedonpastperformance.The presumptionisthatsuperiorpastperformanceisduetoskillandthatskillispersistent.to examinethepresenceoffundswithpersistentsuperiorperformance,wesortfundsaccording toperformanceandthenestimatetheirperformanceduringsubsequentyears,following Carhart(1997).Wenotethatthisapproachissubjecttopossiblemodelmisspecification,since thesameperformanceattributionmodelisusedtorankfundsandtomeasureperformance.if themodelhasabiasinriskadjustment,forexampleduetoanomittedvariable,thebiasin rankingwillalsoaffectthesubsequentmeasurementofperformance. WechoosetorankfundsontheirperformanceduringathreeJyearperiodratherthana shorterperiodtoreducenoise.ourfirstrankingperiodis1993j1995.basedontheirnetexcess returnalphas,wefirstrankfundsbydeciles,thefirstdecilehavingthehighestandthetenth thelowestperformance,andthenindividuallybythetopfiveandbottomfivefunds.wenext estimatetheperformanceofdecilesandtopandbottomfundsfrom1996onwardsinonejto fivejyearjlongevaluationperiods(timeperiod1996j2000).movingtherankingandevaluation periodsoneyearforwardatatime,thisisrepeated17moretimes.thelastrankingperiodis 2006J2008andthelastevaluationperiod2009J2013.Ineachevaluationperiodwerequirethat 16 Indexfundsholdallequitiesinitsbenchmark(oraderivativeofthebenchmarkitself)andthereforetakeno systematicriskintheformofvalueorgrowthbiasorexploitmomentumbyholdingonlyasubsetoftheequities includedinthebenchmark. 9

11 fundsarepresentfromthebeginningtotheendtobeincluded.wethencalculateaverage performanceforthe18evaluationperiods.theresultsarepresentedinfigure3. [FIGURE3a)andb)] Performancevariesgreatlyacrossdecilesintherankingperiod.Notethattheprocedure meansthatthecompositionofdecilesandtheidentityofafundwithaparticularrankchange overtime.thetopdecilefundhasanaveragepositivenetexcessreturnofnearlytenpercent peryearandtheaveragebottomdecilefundanaveragenegativeexcessreturnofnearlyseven percentperyear.theabsenceofpersistenceintheevaluationperiodisquitestriking.average decilereturnshavemoreorlessconvergedtothemeaninthesecondyearandremainclosein thefollowingyears.ithardlypaystoinvestinafundinthetopdecileformorethanoneyear aftertherankingperiod;theaveragenetreturnisclosetozerosubsequently.theseconddecile fundsisamorepromisingbet;excessreturnsarepositiveinthetwojtofivejyearperiods,but investorscanexpecttheworstreturnofalldecilesinthefirstyearoftheperformanceperiod. Thesamepatternofrapidconvergencetowardsthemeanisvisibleforthetopand bottomfivefunds,seepanelb)infigure3.thedispersionofreturnsacrossfundsinthe evaluationperiodismuchgreaterthanforfunddeciles,withadifferenceinyearlynetexcess returnsofnearly30percentagepointsperyearbetweentheaveragetopandbottomfund. Lookingatsubsequentperformance,itisnotclearwhattheadvicetoaninvestorshouldbe. ThetopfundendsupbeingthebottomfundinthethreeJtofiveJyearperiods,andthesecond worstfundbecomesthesecondbestinthesameperiods. Therapidreversiontothemeanofexcessreturnsandthegenerallackofpersistencein rankingsarestrongindicationsthatfundmanagerslackstockjpickingskillsandthatexcess returns positiveornegative areduetogoodandbadluck. 5.Skillorluck? Totestwhethertheperformanceofactivefundsistrulysuperiororinferior,especiallyatthe tailsofthedistribution,weemployabootstrapprocedurethatyieldsadistributionofpseudoj returnsforeachfundundertheassumption(nullhypothesis)thattruealphaofeveryfundis zero.withgrossexcessreturns,settingalphaequaltozeropresumesthatfundsobtainthe sameexcessreturnasthemarketportfolio.withnetexcessreturns,settingalphaequaltozero presumesthatfundscanobtainreturnsthatcoverthecostsofactivemanagement,butnot more.actualestimatesoffundexcessreturnsarecomparedtobootstrappedexcessreturns.if actualgrossexcessreturnsdifferfrombootstrappedreturnswithstatisticalconfidence,we concludethattheabnormalexcessreturnsareduetosuperiororinferiorskillinpickingstocks. 10

12 Ifnot,wecannotruleoutthatactualgrossreturnsareduetogoodorbadluck,andnotto superiororinferiorskill.ifactualnetexcessreturnsexceedbootstrappedreturnswith statisticalconfidence,weconcludethatthefundmanagerhassufficientskilltomorethan compensateinvestorsforthecostsofactivemanagement.ifactualnetexcessreturnsare statisticallysignificantcomparedwithbootstrappedreturnsunderthehypothesisofzeronet excessreturns,weconcludethatthefundmanagerisunabletocompensateinvestorsforthe costsofactivemanagement. Togeneratereturnsunderthenullhypothesisofzeroalphas,wesubtracteachfund s excessreturnasmeasuredbyalphafromequation(1)fromitsmonthlygrossandnetreturns forthepartof2003j2013ithasbeeninexistence.asimulationrunisarandomsamplewith replacementdrawnfromthefund s(alphajneutralized)monthlyreturns,thesamerandom sampleofmonthsforeachfund.eachtimeacertainmonthisdrawn,allfundsinexistencethat montharegivenitscorrespondingadjustedreturnandthecorrespondingfactorreturn(beta) forthatmonth.weestimateequation(1)foreachfundonthesimulationdrawofadjusted fundreturnsandfactorreturns.eachsimulationrunproducesacrossjsectionofalpha estimatesusingthesamerandomsampleofmonths.thisisdone5,000timestoproducea distributionofalphasateachpointintherankingdistribution(undertheassumptionofzero alphas).thedistributionforthetopfundisconstructedasthedistributionofthemaximum alphageneratedacrossallbootstraps,thedistributionforthesecondbestfundasthesecond bestalphaacrossallbootstraps,andsoon. Notethatinagivensimulationrun,fundswillhavethesamerandomsampleofmonths aswhentheyoverlapinexistence.thishastheadvantagethatthesimulationswillcaptureany crossjcorrelationinfundreturns.inunreportedresults,weseethatcrossjcorrelationexistsand isimportant theconfidenceintervalswiden.thejointsamplingoffundandfactorreturnshas theaddedadvantageofcapturinganyheteroscedasticityoftheexplanatoryreturnsandthe disturbancesofthebenchmarkmodel.samplingthesamemonthsforallfundshasthe disadvantagethatafundmayshowupinasimulationrunformoreorlessthanthenumberof monthsithasactuallyexistedsinceanygivenmonthmaybesampledmorethanonceornever. Presumably,overJsamplingofsomefundswillbebalancedbyunderJsamplingofothersineach simulationandoverthe5,000runsusedtomakeinferences.thereisacaveat,however.we discardfundswithareturnhistoryoflessthan36months,withtheresultthatwemayendup withabitmoreoverjthanunderjsampling Effectively,forthe2002J2013period,forwhichwehave124activelymanagedfunds,4,095bootstrapsamples containthisnumberoffunds.869bootstrapsamplescontain123activelymanagedfunds.only36bootstrap samplescontain122fundsorfewer.inthecaseswhentherearefewerthen124fundsinthebootstrapsample, weusetheconfidenceintervaloftheclosestfundpercentilejwiseintherankingdistribution,toformthe confidenceintervalbasedon5,000bootstrapsforallofthe124funds. 11

13 Therearetwomorecaveats.Usingthesamemonth sreturnforallfundsinasimulation runpreservesthecrossjcorrelationoffundreturns,buteliminatesanyeffectsof autocorrelation.thisseemstobeaminorproblem,seee.g.fama(1965)orkosowskiet.al. (2006).Also,sincewerandomlysamplemonths,weloseanyeffectsoftimevariationinthe regressionslopesof(1).fersonandschadt(1996)arguethattimevariationshouldbeallowed, butinunreportedresultsweseeverysmalleffectsonstandarderrorswhenweallowfor NeweyJWestcorrection. WearenowreadytoturntosimulationJbasedresults,andstartwith bootstrappeddistributionsofgrossexcessreturns(grossalphas).figure4shows90percent confidencebands(fivepercentoneachside)aroundthebootstrappedgross1jfactoralpha distributionandaroundthetjvaluesofthebootstrapped1jfactoralphadistributionforthesub period Itshouldbepointedoutthattheconfidencebandsarebasednotonan assumedparametricformofthedistributions,butonactualcountsofpointestimatesoverthe 5,000simulations. 18 Estimatesofactualgross1JfactoralphasandtJvaluesofactualgross1J factoralphasarealsoshown(theestimatesofalphaareofcoursethesameasinthesubplot ontherightinfigure2).fundsthatareshortjlivedhavelesspreciseestimatesofexcessreturns estimateswithgreaterstandarderrors thanfundsthatexistthewholetimeperiod.byusing thetjstatisticsoftheestimatesofexcessreturns,onecancontrolfortheeffectofdifferentlifej timesoffundsandthesubsequentprecisionoftheestimates.becauseofthis,tjstatisticsisthe preferredstatisticofbothkosowskiet.al.(2006)andfamaandfrench(2010). [FIGURE4] Ascanbeseen,thereisonlyonesignificantlypositiveactualgross1Jfactoralpha relativetobootstrappedgrossalpha(forthefundrankedtenth)andonlyonesignificant positivegross1jfactoralphawhentestingontjvaluesofactualandbootstrappedgrossalphas (forthefundrankedsecondintermsoftjstatistic).nofundhasanegativeandsignificantgross alpha. Wedrawtheconclusionthatthereisverylittleevidenceoftruestockpickingskills amongmanagersofactivelymanagedswedishequitymutualfundsin Also,there isnoevidenceofinferiorskillsattheotherendofthedistribution. Figure5showstheresultsoftheanalogousexercisefornetexcessreturns(netalphas). Asshouldbeexpectedfromthefindingofverylittleskillinthegrossalphas,nofundisfoundto besufficientlyskilledtocompensateforthecostofactivemanagementandgiveinvestorsa significantpositivenetalphain2002j2013.thisholdsforbothtestsonactualrelativeto bootstrappednetalphasaswellastestsontjvaluesofactualandbootstrappednetalphas. 18 Kosowskietal(2006)stressthattheactualdistributionmaydifferfromthenormaldistribution. 12

14 [FIGURE5] 6.Summary Mostinvestorsandfinancialadvisersseemtobelievethatsomefundmanagerspossesstrue skillinpickingstocks.financialadviserscommonlyrecommendthatinvestorslookatpast returnsoffundsasaguidetochoosewhichfundtoinvestin.thismeansthattheynotonly believeintheexistenceofsuperiorskills,butalsothatskillsarepersistentandthatreturn unadjustedforsystematicriskisagoodmeasureofskills. Weexaminewhetherthesebeliefsarewarrantedbyanalyzingperformanceand persistenceofswedishequitymutualfundsintheperiod1993j2013.performanceismeasured asthegrossandnetreturninexcessofariskjfreeinterestrateandadjustedformarketrisk (beta),i.e.grossandnet1jfactoralpha.grossexcessreturnsarerelevantfordetermining whetherfundmanagershavesuperiororinferiorskills,whileexcessreturnsnetof managementcostsarerelevantforinvestors. Wefindasharpbreakintheperformanceofactivelymanagedfundsaround In ,theaverage1Jfactorgrossalphaofactivelymanagedfundswas3.55per cent,andin itwas 0.18percent.Wearguethatthesuperiorreturnsintheearlier periodwereduetoabiastowardsitjstocksandaninefficientmarket.thenumberofactively managedfundsmorethandoubledbetweenthetwosubperiods.whateverthereasonsforthe lowerlevelofreturnsafter ,inferencesabouttoday sperformance,persistence andthepresenceofstockpickingskillshouldbebasedonthelaterperiod. Onlythetoptwelvefundsobtainedsignificantpositivegrossalphasin (with 90percentconfidence,95percentoneachside),whereasagreaternumberobtained significantnegativegrossalphas.inotherwords,somestockjpickingskillsseemtoexistamong thetopfundmanagers.italsoappearsthatalargernumberoffundmanagersatthebottom endofthedistributionhaveinferiorskillsorinefficientmanagementaccordingtoconventional tests. Welackdatatoadjustforadditionalsystematicriskfactorslaterthan2009.3Jand4J factorgrossalphasmaydifferfrom1jfactoralphasandleadtosubstantiallydifferent conclusionsaboutfundperformance.however,acomparisonof1j,3jand4jfactoralphasin 1999J2009doesnotrevealanylargedifferences. Wealsoexaminetheperformanceof20indexfundsbasedontheirownbenchmarks. Wefindthatindexfundshaveanegativetrackingerroronaveragein2002J2013,andthata 13

15 handfuloffundshaveatrackingerrorof 0.61percentperyearormore.Itisclearthat investorsshouldconsidertrackingerrorandfeeswhenchoosinganindexfund. Thefivetopdecilesofactivefundshavepositivegrossalphasin1993J2013andthefour topdecileshavepositivegrossalphasin2002j2013.ifthisisduetosuperiorstockpickingskills theyshouldexhibitpersistencyintheirreturns.persistenceisexaminedbyrankingfundson threejyearperformanceandevaluatingperformanceduringthefollowingonejtofivejyear periods.wefindthatperformanceconvergestothemeanintwoyears,andstaysclosetothe meansubsequently.thisholdsbothfordecilesandfortopandbottomfivefunds.hence,there ispracticallynoevidenceofpersistenceandthereforeofskill. Wealsoexaminethepresenceofskillbycomparingactualreturnsofactivelymanaged fundstobootstrappedreturns.thebootstrappedreturnsaregeneratedundertheassumption ofzeroalpha.thebootstrapyieldsadistributionofpseudojexcessgrossandnetreturnsfor eachfund.wetestwhethertheactualexcessreturnofeachfundissignificantlydifferentfrom thesimulatedexcessreturnin2002j2013.wefindthatonefund(rankedinsecondplace)hasa significantgrossexcessreturnatthe(twojsided)90percentlevelwhentestingonthetjvalues ofalphaestimates.similarly,onefund(rankedintenthplace)hasasignificantgrossexcess returnwhentestingonthealphaestimatesdirectly.nofundisabletogiveinvestorssignificant apositivenetexcessreturn.lookingatnegativegrossexcessreturnsin2002j2013,ninefunds closetothebottomhavesignificantlyinferiorgrossexcessreturnswith90percentconfidence whentestingonthetjvaluesofthealphaestimates,butnotwhentestingonthealpha estimatesdirectly. Inconclusion,thereisverylittleevidenceoftruestockpickingskillamongmanagersof Swedishequitymutualfundsandnoevidencethatfundscangiveinvestorspositivenetreturns. 14

16 References( Betermier,Sebastien,LaurentCalvetandPaoloSodini,2013,WhoaretheValueand GrowthInvestors?,mimeo Berk,JonathanB.andJulesH.vanBinsbergen,2013,Measuringskillinthemutualfund industry,manuscriptdatednovember4. Carhart,MarkM.,1997,Onpersistenceinmutualfundperformance,Journal$of$Finance 52,57J82. Cuthbertson,Keith,DirkNietzscheandNiallO Sullivan,2008,Journal$of$Empirical$ Finance15,613J634. Dahlquist,Magnus,StefanEngströmandPaulSöderlind,2000,Performanceand characteristicsofswedishmutualfunds,journal$of$financial$and$quantitative$analysis35,409j 423. Engström,Stefan,2004,Investmentstrategies,fundperformanceandportfolio characteristics,sse/efi Working Paper Series No Fama,EugeneF.,1965,Thebehaviorofstockmarketprices,Journal$of$Business38,34J Fama,EugeneF.andKennethR.French,1993,Commonriskfactorsinthereturnson stocksandbonds,journal$of$financial$economics33,3j56. Fama,EugeneF.andKennethR.French,2010,LuckversusskillinthecrossJsectionof mutualfundreturns,journal$of$finance65,1915j1947. Ferson,WayneE.andRudiW.Schadt,1996,Measuringfundstrategyandperformance inchangingeconomicconditions,journal$of$finance51,425j462. Kosowski,Robert,AllanTimmerman,RussWermers,andHalWhite,2006,Canmutual fund stars reallypickstocks?newevidencefromabootstrapanalysis,journal$of$finance61, 2551J

17 Table(1.((Fund(and(factor(returns( Panel(A.(Equally6weighted(portfolio(returns( ( ( 1993J J2013 No.of No.of Portfolio funds Mean Std funds Mean Std Allfunds ,72% 20,21% 153 9,11% 19,69% Activelymanaged funds 95 21,75% 20,16% 133 9,13% 19,72% Indexfunds 8 21,15% 21,69% 20 8,81% 19,88% SIXPRX J 19,85% 19,78% J 10,47% 19,50% STIBOR1M J 5,68% 0,62% J 2,41% 0,37% Panel(B.(Factor(returns( ( ( 2002J2009 Factor Mean Std SIXPRX 9,0% 21,5% STIBOR1M 2,9% 0,4% SMB 1,3% 20,3% HML 17,3% 29,2% MOM J2,0% 38,2% Note:Fundreturnsareequallyweightedmonthlyreturns.Allreturnstatisticshavebeen convertedfrommonthlytoannualfrequency. 16

18 Table(2.((Fees(and(expenses( Actively(managed(funds( Index(funds( No.offunds Mean Std No.offunds Mean Std Annualfee 115 1,3% 0,4% 17 0,5% 0,2% Entryfee 21 2,4% 2,1% 2 0,7% 0,4% Exitfee 48 1,2% 1,5% 5 0,7% 0,4% Performancefee 8 18,1% 6,9% 0 J J TER 124 1,3% 0,4% 19 0,46% 0,20% TKA 114 1,6% 0,6% 13 0,5% 0,3% Othercosts 50 0,2% 0,2% 4 0,0% 0,1% Notes:TERisdefinedasxxx.TKAisdefinedasxxx.Forfeesnotchargedorexpenseitemsnotcharged, observationshasbeencodedasmissingratherthanzero. Note:117activefundswithTERdataand19indexfundswithTERdataiffilepassive_smallisused.If returns_morningstar_sthlm_moneymateisused,thereare124activefundswithterdataand19index funds. 17

19 Table(3.((16factor(alphas(for(actively(managed(funds( ( ( ( ( Portfolio ( Net Gross Net Gross Net Gross Allfunds 2,14% 3,55% J1,47% J0,18% J0,91% 0,44% 1stdecile 9,72% 10,8% 3,83% 5,04% 4,52% 5,55% 2nddecile 5,81% 7,11% 1,29% 2,68% 1,93% 3,34% 3rddecile 4,25% 5,62% J0,14% 1,25% 0,61% 2,07% 4thdecile 3,16% 4,53% J0,83% 0,59% J0,11% 1,22% 5thdecile 2,20% 3,74% J1,38% J0,19% J0,80% 0,66% 6thdecile 1,04% 2,75% J1,91% J0,66% J1,21% 0,15% 7thdecile 0,38% 1,89% J2,29% J1,00% J1,77% J0,40% 8thdecile J0,10% 1,35% J2,96% J1,83% J2,61% J1,02% 9thdecile J1,09% 0,60% J4,23% J2,88% J3,39% J2,04% 10thdecile J3,97% J1,84% J5,71% J4,40% J5,90% J4,76% 1stfund 13,6% 14,2% 5,42% 7,14% 7,10% 8,85% 2ndfund 12,9% 14,0% 5,39% 5,94% 7,05% 6,52% 3rdfund 10,1% 8,81% 4,51% 5,65% 5,28% 6,15% 4thfund 7,39% 8,59% 4,46% 5,22% 4,65% 5,94% 5thfund 7,28% 8,29% 4,24% 4,90% 4,51% 5,35% 5thfromlastfund J2,52% J0,05% J5,47% J4,12% J4,85% J3,92% 4thfromlastfund J2,53% J0,17% J5,58% J4,21% J5,39% J4,40% 3rdfromlastfund J4,10% J1,10% J6,76% J4,62% J7,09% J4,53% 2ndfromlast fund J5,82% J4,42% J7,23% J6,40% J8,26% J6,65% Lastfund J7,01% J5,40% J8,22% J6,61% J14,7% J13,2% Notes:The1993J2001netsamplecomprisesof60fundsandthegrosssampeof56funds. The2002J2013net(gross)samplecomprisesof124(113)funds.The1993J2013net(gross) samplecomprisesof128(117)funds.thenumberoffundsineachdecileisroundedto nearestinteger(e.g.,either5or6inthe1993j2001grosssample). 18

20 Table(4.(((Benchmark6based(16factor(net(and(gross(alphas(for(index(funds( ( ( ( ( Fund ( Net Gross Net Gross Net Gross Allfunds 0,00% 0,54% J0,84% J0,22% J0,72% J0,09% 1stfund 2,40% 3,13% 0,10% 0,10% 0,49% 0,98% 2ndfund 0,18% 0,92% J0,17% 0,14% 0,10% 0,10% 3rdfund J0,69% J0,15% J0,21% 0,09% J0,12% 0,20% 4thfund J0,77% J0,46% J0,29% 0,02% J0,25% 0,05% 5thfund J1,12% J0,72% J0,36% J0,05% J0,25% 0,48% 6thfund J J J0,47% 0,03% J0,31% J0,01% 7thfund J J J0,49% J0,09% J0,36% J0,05% 8thfund J J J0,53% J0,04% J0,42% J0,02% 9thfund J J J0,57% J0,03% J0,47% 0,03% 10thfund J J J0,69% J0,29% J0,48% 0,06% 11thfund J J J0,74% J0,44% J0,59% 0,15% 12thfund J J J0,76% J0,26% J0,69% J0,29% 13thfund J J J0,79% J0,35% J0,74% J0,44% 14thfund J J J0,95% J0,22% J0,76% J0,26% 15thfund J J J1,01% J0,61% J0,79% J0,35% 16thfund J J J1,11% J0,38% J1,01% J0,61% 17thfund J J J1,17% J0,37% J1,17% J0,37% 18thfund J J J1,25% J0,73% J1,25% J0,73% 19thfund J J J1,53% J0,70% J1,53% J0,70% 20thfund J J J3,82% J J3,82% J Note:Foreachofthethreetimeperiodsthefundsarerankedonnetalpha.Sevenfundshave aversionofomxs30asbenchmarkindex,anothersevenreportaversionofomxsbas benchmark,andthreefundsreportsixrxasitsbenchmark.inaddition,onefundeach reportssix30rx,omxafgxandsix/gesethicalswedenasitsrespectivebenchmark.we allowforminoradjustmentstosuitableproxiesforeachfund'sbenchmarkindexsothatwe defactousethreeindicesintheestimation;sixprx,six30rxandomxsbcapgi.since SIX30RXdoesnotexistpriorto2000,weloseobservationsforthreeindexfundsthatexisted inthe1990sandthathaveomxs30asbenchmark. 19

21 Table&5.&Actual&and&bootstrapped&t3statistics,&13factor&model,&gross&returns&of&actively&managed&funds& & & & 1993&3&2001& & 2002&3&2013& & Actual t Bootstrappedt Actual < Bootstrapped Actual t Bootstrappedt Actual < Bootstrapped 1stdecile 3,73 1,51 0,04% 2,15 1,51 11,1% 2nddecile 2,62 0,89 0,06% 1,16 0,91 29,6% 3rddecile 2,08 0,58 0,14% 0,69 0,60 41,7% 4thdecile 1,66 0,32 0,36% 0,35 0,33 48,8% 5thdecile 1,43 0,08 0,09 27,8% 6thdecile 0,70% 17,2% 7thdecile 0,82% 15,7% 8thdecile 0,88% 10,5% 9thdecile 0,56% @1,57 4,08% 1stfund 4,73 1,95 0,00% 3,12 2,25 8,28% 2ndfund 4,22 1,78 0,12% 3,10 1,94 2,96% 3rdfund 3,38 1,53 0,28% 2,53 1,76 7,96% 4thfund 3,37 1,37 0,08% 2,30 1,64 10,4% 5thfund 3,35 1,25 0,02% 2,09 1,54 @1,57 @1,66 @1,79 @1,96 @2,28 15,7% Note:[email protected]@2013samplecovers113funds.Thethirdandsixthcolumnreportstheone@sided bootstrappedconfidenceintervalbasedon5000bootstraps.

22 Table&A1.&&1*,&3*&and&4*factor&alphas&for&actively&managed&funds&(1999*2009)& 1*factor& 3*factor& 4*factor& & Portfolio & Net Gross Net Gross Net Gross Allfunds 10,48% 0,84% 10,30% 1,03% 10,27% 1,09% 1stdecile 6,16% 7,02% 6,02% 6,93% 6,63% 7,84% 2nddecile 3,15% 4,61% 3,03% 4,51% 3,32% 4,73% 3rddecile 1,45% 2,97% 1,68% 3,10% 1,68% 3,15% 4thdecile 0,22% 1,57% 0,37% 1,77% 0,24% 1,55% 5thdecile 10,47% 0,86% 10,32% 0,99% 10,33% 0,84% 6thdecile 11,07% 0,32% 10,93% 0,43% 10,83% 0,51% 7thdecile 11,64% 10,26% 11,54% 10,14% 11,34% 0,06% 8thdecile 12,32% 10,91% 12,20% 10,80% 11,93% 10,47% 9thdecile 13,73% 12,39% 13,20% 11,73% 13,60% 11,91% 10thdecile 16,01% 14,85% 15,42% 14,25% 16,04% 14,85% 1stfund 10,3% 10,41% 9,89% 9,80% 13,6% 15,2% 2ndfund 8,67% 9,89% 8,05% 9,46% 8,13% 9,88% 3rdfund 8,39% 9,14% 7,96% 8,92% 8,00% 8,49% 4thfund 7,64% 6,96% 7,42% 6,79% 6,99% 7,88% 5thfund 5,48% 6,28% 5,65% 6,15% 6,38% 6,97% 5thfromlastfund 15,39% 14,40% 14,85% 13,73% 15,24% 14,11% 4thfromlastfund 16,03% 14,53% 15,37% 14,51% 15,48% 14,62% 3rdfromlastfund 16,20% 14,83% 15,94% 14,84% 16,43% 15,31% 2ndfromlast fund 17,09% 15,10% 17,86% 15,17% 18,00% 15,34% Lastfund 114,7% 113,17% 111,1% 19,61% 114,6% 113,1% Notes:Thenetsampleconsistsof117fundsandthegrosssampleof107funds.

23 Figure1 1

24 Figure2 2

25 Figure3a) 3

26 Figure3b) 4

27 Figure4 5

28 Figure5 6

29 FigureA1 7