Active fund management performance and costs

Abstract

Active weight, active expense ratio and active alpha are measures that can be calculated with relative ease for any fund using publicly available data. However, for active weight to be truly useful to an investor the relationship between these quantities and fund performance needed to be explored in greater detail. Furthermore, the costs of South African unit trust funds had not been studied using Miller’s techniques and needed further study. Finally, active weight had not been used to study the evolution of active management over time. Using quarterly South African unit trust fund data this study delivered on the following key findings: that funds with higher active weight provide excess returns to their investors; that funds with a higher active expense ratio do not necessarily provide greater returns; and that the active alpha for South African unit trusts is negatively correlated with fund performance.