Prospecting for Alpha: Equity Fund Performance, Flows and the Mining Boom in Australia

Abstract

Industry performance is a key component of the top-down approach to investment management. The recent boom in the stock prices of mining companies in Australia affords an opportunity to examine whether equity funds are able to capture industry outperformance. Funds with a higher exposure to the mining industry do not earn higher returns, yet they are able to attract increased flows from investors. The positive impact of mining exposure on fund flow is consistent with investors being attracted to ‘hot’ investment styles and misinterpreting industry allocation as fund skill.

Keywords: Managed equity funds, Australian mining boom, Fund flows, Performance

JEL Classification: G11, G23