Performance and Market Maturity in Mutual Funds: Is Real Estate Different?

Bryan D MacGregor; Rainer Schulz; Yuan Zhao

doi:10.1007/s11146-020-09787-0

Performance and Market Maturity in Mutual Funds: Is Real Estate Different?

Bryan D MacGregor^* (Corresponding Author), Rainer Schulz, Yuan Zhao

^*Corresponding author for this work

Accountancy & Finance, Finance

Research output: Contribution to journal › Article › peer-review

3 Citations (Scopus)

3 Downloads (Pure)

Abstract

Despite the lack of convincing evidence that active investment fund managers add value, the number of actively-managed US mutual funds has increased substantially over the last 25 years. While non-sector diversified mutual funds have received much attention, sector funds, except real estate mutual funds (REMFs), have not. In this paper, we provide new and more robust evidence on the performance of active REMFs compared to all actively managed mutual funds. We use the Carhart four-factor model with an additional liquidity factor as a riskadjusted benchmark. We use wild bootstrap methods to deal with
small samples, non-normality and heteroscedasticity, and we control
for the false discovery of significant results. For portfolios of fund types, we find evidence of both significant outperformance and underperformance, net of fees, during 1992-2016. We consider non-overlapping five-year and three-year periods and find very limited evidence of persistent outperformance. For individual funds, we find that, for both sector and diversified funds, net of fees,
only 0.79% are skilled. We find persistence in skills for only two individual fund managers of diversified funds. We investigate the effects of the outsourcing of management and of team versus individual management. Outsourcing has no effect on performance of non-RE sector funds but, for cap-based funds and style-based funds, it has a negative effect. There is some evidence that this may also be true for REMFs. Team management has no effect for any types of funds. Overall, we conclude that REMFs are generally no different from other sector funds

Original language	English
Pages (from-to)	437–492
Number of pages	56
Journal	The Journal of Real Estate Finance and Economics
Volume	63
Early online date	22 Aug 2020
DOIs	https://doi.org/10.1007/s11146-020-09787-0
Publication status	Published - 1 Oct 2021

Keywords

mutual fund performance evaluation
false discovery rate
risk-factor model
real estate

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@article{ac0a7bdada224041bc745eb7ad229b84,

title = "Performance and Market Maturity in Mutual Funds: Is Real Estate Different?",

abstract = "Despite the lack of convincing evidence that active investment fund managers add value, the number of actively-managed US mutual funds has increased substantially over the last 25 years. While non-sector diversified mutual funds have received much attention, sector funds, except real estate mutual funds (REMFs), have not. In this paper, we provide new and more robust evidence on the performance of active REMFs compared to all actively managed mutual funds. We use the Carhart four-factor model with an additional liquidity factor as a riskadjusted benchmark. We use wild bootstrap methods to deal withsmall samples, non-normality and heteroscedasticity, and we controlfor the false discovery of significant results. For portfolios of fund types, we find evidence of both significant outperformance and underperformance, net of fees, during 1992-2016. We consider non-overlapping five-year and three-year periods and find very limited evidence of persistent outperformance. For individual funds, we find that, for both sector and diversified funds, net of fees,only 0.79% are skilled. We find persistence in skills for only two individual fund managers of diversified funds. We investigate the effects of the outsourcing of management and of team versus individual management. Outsourcing has no effect on performance of non-RE sector funds but, for cap-based funds and style-based funds, it has a negative effect. There is some evidence that this may also be true for REMFs. Team management has no effect for any types of funds. Overall, we conclude that REMFs are generally no different from other sector funds",

keywords = "mutual fund performance evaluation, false discovery rate, risk-factor model, real estate",

author = "MacGregor, {Bryan D} and Rainer Schulz and Yuan Zhao",

note = "We are grateful for helpful comments from David Ling, Jeff DiBartolomeo, Scott Robertson, Martin Wersing, and seminar participants at the Humboldt-Universit¨at zu Berlin and conference participants at the American Real Estate Society annual conference in Phoenix, Arizona, 2019. Financial support from the Deutsche Forschungsgemeinschaft SFB649 is gratefully acknowledged. Finally, we would like to thank the anonymous reviewer for helpful comments that have enabled us to strengthen the paper. The usual disclaimer applies. Open Access via Springer Compact Agreement",

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N1 - We are grateful for helpful comments from David Ling, Jeff DiBartolomeo, Scott Robertson, Martin Wersing, and seminar participants at the Humboldt-Universit¨at zu Berlin and conference participants at the American Real Estate Society annual conference in Phoenix, Arizona, 2019. Financial support from the Deutsche Forschungsgemeinschaft SFB649 is gratefully acknowledged. Finally, we would like to thank the anonymous reviewer for helpful comments that have enabled us to strengthen the paper. The usual disclaimer applies. Open Access via Springer Compact Agreement

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N2 - Despite the lack of convincing evidence that active investment fund managers add value, the number of actively-managed US mutual funds has increased substantially over the last 25 years. While non-sector diversified mutual funds have received much attention, sector funds, except real estate mutual funds (REMFs), have not. In this paper, we provide new and more robust evidence on the performance of active REMFs compared to all actively managed mutual funds. We use the Carhart four-factor model with an additional liquidity factor as a riskadjusted benchmark. We use wild bootstrap methods to deal withsmall samples, non-normality and heteroscedasticity, and we controlfor the false discovery of significant results. For portfolios of fund types, we find evidence of both significant outperformance and underperformance, net of fees, during 1992-2016. We consider non-overlapping five-year and three-year periods and find very limited evidence of persistent outperformance. For individual funds, we find that, for both sector and diversified funds, net of fees,only 0.79% are skilled. We find persistence in skills for only two individual fund managers of diversified funds. We investigate the effects of the outsourcing of management and of team versus individual management. Outsourcing has no effect on performance of non-RE sector funds but, for cap-based funds and style-based funds, it has a negative effect. There is some evidence that this may also be true for REMFs. Team management has no effect for any types of funds. Overall, we conclude that REMFs are generally no different from other sector funds

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DO - 10.1007/s11146-020-09787-0

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JO - The Journal of Real Estate Finance and Economics

JF - The Journal of Real Estate Finance and Economics

SN - 0895-5638

ER -

Performance and Market Maturity in Mutual Funds: Is Real Estate Different?

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