Analysis of Mutual Funds’ Performance in Germany after the Financial Crisis

Adjoa Nyameyie Kuntu-Blankson

Master's thesis

Abstract:

The explosive growth of the mutual fund industry over the years has prodded a number of studies, analyses and findings. Likewise, the origin and the impact of financial blowbacks on the same sector has piqued individual, professional, institutional, and national interests. The performance of the mutual fund industry has become an area of concern as mutual funds have become an avenue of growth prospects in all economy types varying from developed to emerging and developing economies. This study employs frequently used measures like Jensen’s Alpha and the ratios of Sharpe, Sortino, Treynor among others to analyse the performance of the German investment fund industry post-crisis. Methodologies employed were analysis, comparison and deduction. The utilisation of these metrics resulted in these findings; under Jensen’s Alpha, it was observed that on the average, there has been 35% underperformance, 25% lock-step performance and 40% outperformance as against benchmarks. Overall, performance of funds in the context of Jensen’s Alpha and Treynor ratio slightly declined during the crisis but gradually bounced back post-crisis as opposed to performance before the crisis. However in the case of Sharpe ratio and Sortino ratio, the fund performed better and rebounded quickly after the financial crisis. This showed the negative impact and the rippling effect of the financial crisis on the German mutual fund industry. The underperformance of funds rules out the notion that Investment advisors and their management teams are able to predict and outperform the market with their stock-picking prowesses. Also the performance of funds do not compensate for their running costs which makes the latter unjustifiable to some extent. In conclusion, German investment fund industry has proved some level of resilience in performance and has been able to beat the passive market. However, in the case of fees, they are not able to compensate for funds‘ performance. Fees could only be made justifiable by varying volatility (of which Fund managers are already practising) by proprotionally picking fund types to outguess the market albeit this approach is not an end-all to outperforming the market.

Abstract:

The explosive growth of the mutual fund industry over the years has prodded a number of studies, analyses and findings. Likewise, the origin and the impact of financial blowbacks on the same sector has piqued individual, professional, institutional, and national interests. The performance of the mutual fund industry has become an area of concern as mutual funds have become an avenue of growth prospects in all economy types varying from developed to emerging and developing economies. This study employs frequently used measures like Jensen’s Alpha and the ratios of Sharpe, Sortino, Treynor among others to analyse the performance of the German investment fund industry post-crisis. Methodologies employed were analysis, comparison and deduction. The utilisation of these metrics resulted in these findings; under Jensen’s Alpha, it was observed that on the average, there has been 35% underperformance, 25% lock-step performance and 40% outperformance as against benchmarks. Overall, performance of funds in the context of Jensen’s Alpha and Treynor ratio slightly declined during the crisis but gradually bounced back post-crisis as opposed to performance before the crisis. However in the case of Sharpe ratio and Sortino ratio, the fund performed better and rebounded quickly after the financial crisis. This showed the negative impact and the rippling effect of the financial crisis on the German mutual fund industry. The underperformance of funds rules out the notion that Investment advisors and their management teams are able to predict and outperform the market with their stock-picking prowesses. Also the performance of funds do not compensate for their running costs which makes the latter unjustifiable to some extent. In conclusion, German investment fund industry has proved some level of resilience in performance and has been able to beat the passive market. However, in the case of fees, they are not able to compensate for funds‘ performance. Fees could only be made justifiable by varying volatility (of which Fund managers are already practising) by proprotionally picking fund types to outguess the market albeit this approach is not an end-all to outperforming the market.

Keywords

\German mutual funds, \Subprime mortgage crisis, \Risk-adjusted performance measures, \Expense ratio, \Shareholder fees, \Asset allocation, \Forecasting, \Deductions, \Predictions, \Survivor bias, \COVID-19.

Language used: English

Date on which the thesis was submitted / produced: 4. 8. 2020

Thesis defence

• Date of defence: 10. 9. 2020
• Supervisor: Ing. Dagmar Vágnerová Linnertová, Ph.D.
• Reader: Ing. Tomáš Plíhal, Ph.D.

Masaryk University

Faculty of Economics and Administration

Master programme / field:
Finance and Accounting / Finance (Eng.)