Hassan, Abul (2005) Evaluating the performance of managed funds: The cases of equity, ethical funds and Islamic index. Doctoral thesis, Durham University.
Managed funds have become a popular investment tool and possess a lot of advantages. However, in spite of their popularity, most past research findings on the evaluation of performance have suggested that managed funds were unable to do significantly better than a large unmanaged portfolio. The aim of this thesis is to evaluate empirically the performance of managed funds. The funds chosen are; UK equity, ethical unit trusts and US-based Dow Jones Islamic index -an index of Islamic ethical funds portfolio. We examine the performance of UK equity unit trusts which invest in UK equities, using monthly samples over the 1986 to 2001 time period. The study compares the return of these unit trusts with a three-factor model which takes into account their exposure to market, value and size risk. After controlling the risk factors, it is found that manager’s under-perfom the market. Contrary to the notion that small company shares offer abundant "beat the market" opportunities, we find that small company trusts are the worst performers. The performance persistence of unit trusts is also examined and it is found that good performance does not persist. There are investors who out of their concern regarding adverse changes in our environment, concerns for justice, and because of their opposition to the arms race, decline to purchase the securities of such enterprises that engage in what are termed unethical or socially irresponsible activities. Such activities usually include, but are not necessarily limited to, the production of armaments, alcohol and tobacco; engaging in activities that degrade the environment; and engaging in activities that treat people unfairly. Declining to invest in the securities of enterprises that engage in unethical practices is not only a form of social protest, but can also have the effect of diminishing the demand for a company's securities. A diminishment of demand may then have an adverse financial impact on a company. This may prove to be a crucial factor in influencing companies to change and become more socially responsible. The question therefore arises: has the investment performance o f ethical investors suffered in comparison to those who are not so responsible? To answer the above, a study has been done which encompasses 35 U K ethical unit trusts which cover the period of seven years tough 1996. The study presents a comprehensive evaluation o f managed funds performance by employing various single to multifactor benchmark models.The added value of introducing extra variables such as size, book to market, momentum and a bond index is explored by evaluating the performance using conditional information and comparing the investment performance of U K ethical unit trusts with unit trusts which are not ethical. After controlling for style tilts and allowing for time variation in betas and expected return, the results show that there is no significant difference in performance between U K ethical unit trust and their conventional peers. Within an unconditional setting SMB, HML and momentum factors are best able to explain ethical unit trust returns. Therefore, unconditional models perform much better than their conditional peers. Islamic ethical investors apply both Islamic ethical and financial criteria when evaluating investments in order to ensure that the securities selected are consistent with their value system and beliefs. Using monthly returns for the period starting from January 1996 to December 2003， the study is conducted to see the potential impact that Islamic ethical restrictions may have on investment performance by comparing the performance characteristics o f a diversified portfolio of Islamic screened stocks (Dow Jones Islamic index) w i t h conventional benchmark portfolio ( Dow Jones Index- Americas). Contrary to expectations, our findings indicate that application of Islamic ethical screens do not necessarily have an adverse impact on investment performance. Results actually show that expected returns of Islamic screened portfolios are higher than the expected returns o f conventional portfolios.
|Item Type:||Thesis (Doctoral)|
|Award:||Doctor of Philosophy|
|Copyright:||Copyright of this thesis is held by the author|
|Deposited On:||09 Sep 2011 09:53|