This study aims to analyze the style and performance of actively managed Finnish equity mutual funds by applying returns-based style analysis of Sharpe (1988, 1992) as the main methodology.
The main results support the findings of previous empirical studies, showing that the performance of actively managed equity mutual funds relative to passive market indices does not statistically differ from zero. Previous findings regarding the high correlation of mutual fund returns with standard asset classes and importance of asset allocation decisions are also strongly supported. The results of the study suggest that the styles obtained from returns-based style analysis are well in line with the stated investment objectives for most of the Finnish equity mutual funds, and that style analysis can effectively reveal additional information to support fund selection- and performance evaluation processes.
However, the results indicate that investment styles of many Finnish equity mutual funds do not significantly differ from a broad market index. The finding appears to be strong especially for the group of largest funds, whose returns a single broad market index is able to explain with an average of over 95%. Thus, the results of the study indicate that returns-based style analysis based on more specific style indices seems to generally provide the greatest relative benefit in the case of smaller funds that seem to have a higher likelihood to apply active management and investment styles not completely captured by a broad market index. The study also documents differences in the consistency of investment styles between different funds during the evaluation period 2004–2013 by applying style analysis with rolling estimation windows.
Main limitations of the study include the relatively small sample size and the general fact that the results obtained from style analysis and performance evaluation are very sensitive to the selection of benchmarks and the chosen sample period
