Investment Performance Ranking of Superannuation Firms

34 Pages Posted: 21 Feb 2014

See all articles by Wilson N. Sy

Wilson N. Sy

Investment Analytics Research

Liu Kevin

Independent

Date Written: June 23, 2009

Abstract

Investment performance studies of pension or mutual funds have overall been too statistically inconclusive to create definitive rankings to help investors make fund selection decisions. This paper presents an alternative approach based on comparing the pension or mutual fund firms themselves which are highly diversified composite portfolios aggregated over all individual portfolios managed by the firms. Performance data of managed fund firms are more useful for investors because we show here that their statistics are more stable and predictable than those of individual portfolios which are subject to more random influences such as selection bias.

This paper overcomes the pitfalls of the Sharpe ratio in ex-post performance ranking by using a new metric for the performance of the composite portfolio of a firm. The metric is risk-adjusted by the volatility of the firm’s benchmark, defined by the aggregate asset allocation of the firm. In an empirical study using unique data, we measure the performance of 115 major Australian superannuation firms. The results show that using the new metric the investment performance ranking of the firms is persistent. We identify that higher operational costs are correlated significantly with lower net investment performance. We indicate how the performance ranking of the firms can help investors make fund selection decisions.

Keywords: Investment performance, risk-adjusted, Sharpe ratio

JEL Classification: D81, G11, G14, G20, G23

Suggested Citation

Sy, Wilson N. and Kevin, Liu, Investment Performance Ranking of Superannuation Firms (June 23, 2009). Available at SSRN: https://ssrn.com/abstract=2398727 or http://dx.doi.org/10.2139/ssrn.2398727

Wilson N. Sy (Contact Author)

Investment Analytics Research ( email )

12 Gilchrist Place
Balmain East, NSW 2041
Australia
0424669802 (Phone)

Liu Kevin

Independent ( email )

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