Performance and Activeness of Norwegian Active Mutual Funds
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This paper aims to investigate the performance and activeness of active open-end mutual funds in Norway in the time period 2010 to 2020. The study uses a dataset free of survivorship bias by including delisted funds in the period. Using R2 and tracking error as measurements of activeness, we identify 98 active mutual funds of which seven are presumed closet indices. Our findings are in line with previous literature, suggesting active fund's ability to outperform the index gross of fees is present, but not with expenses taken into consideration. Further, our analysis implies that a more significant share of active funds outperforms the global market over the domestic market. These results deviate from previous Norwegian literature in one area: previous research favors active management invested domestically, while our model suggests they perform better globally than domestically. This may be due to different sample periods or the new cost structure of funds after the introduction of the MIFID-II law. Further, funds operate with different minimum investments and expenses. We found a correlation regarding minimum first-time deposit and expenses for each fund - minimum deposits increase, causing the average fees to decrease. Our models suggest the performance is close to equal for funds with high and low minimum deposit, gross fees. This indicates that retail investors (i.e., investors with less than NOK 500.000 to investment) have less to gain by choosing active funds, over institutional investors, because of the increase in the expenses. Finally, to measure managers' risk-adjusted return, we apply a Sharpe ratio to evaluate the risk associated with each fund's return. This shows how much additional return an investor earns by taking additional risk. We conclude that the average fund is able to deliver satisfying ratios; only 11,2% of our fund sample underperform on this measurement. Overall, we cannot conclude that Norwegian active mutual fund’s either outperform or underperform the index regarding risk-adjusted excess returns net fees because of the lack of sufficient significant alphas.