Large and small funds : institutional versus boutique fund effects on unit trust investment performance

Abstract

Individuals who rely on mutual funds to accumulate wealth need advice on how best to select them (Ciccotello&Grant, 1996). The purpose of the study is to gain insight whether fund size and boutique or institutional fund structure of unit trusts affects returns. It expands the body of knowledge on investment performance factors and equips investors with a tool to make informed decisions when contemplating various fund manager offerings.Data was collected from the database of the Association for Savings and Investment (ASISA) for South African general equity unit trust returns and fund size information covering a period of 44 quarters from March 2001 to December 2011. Domestic general equity unit trusts were analysed during the period under review. A regression analysis was run to test for fund size as an indicator of investment performance. A parallel study was conducted to test whether boutique funds outperform institutional funds.The results indicate that fund size has no influence on fund performance. The findings also show that there is no significant difference between the performance of boutique style unit trust funds and institutional unit trust funds. These findings contradict the findings of previous research by (Fama, 1972); (Chen, Hong, Huang, &Kubik, 2004; Ciccotello&Grant, 1996; Droms&Walker, 1996) who found fund size, either positively or negatively have an influence on mutual fund returns while (Gallagher&Martin, 2005) and Schönfeld (2009) concluded that boutique funds offer better returns compared to institutional funds. Investors would be advised to carry out a fund by fund analysis to identify the optimal domestic unit trust investment fund when investing as opposed to an aggregated study.