Can Croatian Fund Managers Create Alpha Returns? Performance of Some Mutual Funds in Croatia

Abstract

The research object of this paper is to scrutinize the risk-adjusted returns of the five largest Croatian open-end equity mutual funds (ZB Aktiv, PBZ Equity, Raiffeisen Central Europe, Erste Adriatic Equity, and ZB Trend), and to compare each of them individually with a selection of the risk-adjusted returns of 10 relevant stock market indices (Crobex, S&P500, Rts50, Belex15, Atx20, Cetop20, Nikkei225, Bux13, Ftse100, and SSE Composite). Jensen alphas were calculated in order to obtain insight into the performance of the funds, with the intention of evaluating the successfulness of the actively managed equity mutual funds in Croatia.

Three time periods were observed, and each of the funds is examined in its own time frame. The first period dates from the funds’ establishment until July 2010; the second is from the funds’ establishment until January 2008. Specific interest was taken into the period of global financial crisis (in Croatia from the beginning of 2008 onwards), and into the performance of the funds during this downturn. Therefore, the third period spans from February 2008 until July 2010. Altogether, 150 individual OLS specifications were taken into account.

Null hypothesis was confirmed, since Jensen alphas indicate underperformance of the funds when compared to market returns. Even though positive (albeit relatively small) alphas were shown in the period of extreme (exponential) growth of the Croatian mutual fund industry (2000 - 2008), these returns have proven themselves to be unsustainable in the long term.

Keywords: active management, passive management, mutual funds, Jensen alpha, Treynor, Sharpe, Croatia

JEL Classification: G11, G23, P27, P33