Performance of Israeli Mutual Funds: Equity and Bond Funds
21 Pages Posted: 6 Mar 2016
Date Written: February 1, 2016
This paper examines the performance of mutual funds in Israel between 2003 and 2008. Almost all of the funds active during all or part of this period were examined. (The following funds were not included in the sample: money market funds, tracking funds, Israeli funds of funds, foreign funds of funds, and “taxable funds".) The funds’ performances were examined by comparing them to benchmarks which were built using regressions of the funds’ yields as compared with: the CPI-Indexed Government Bonds Index; the Government Shekel Bonds Index; the CPI-Indexed Corporate Bonds Index; the General Shares Index; the MSCI World Index, and the shekel return on dollar-linked interest investments. The funds were grouped according to their classifications into three investment categories, all of which showed annualized underperformance: government bonds – -2.08 percent; corporate bonds – -3.35 percent; non-bond (mostly share) funds – -3.62 percent. Such underperformance, which is statistically significant, was also found when the period was divided into subperiods. The main reason for the underperformance is the management fees charged by the funds, although underperformance was found even before deducting management fees: government bonds – -0.69 percent; corporate bonds – -1.72 percent; non-bond (mainly share) funds – -1.00 percent. The underperformance before deducting management fees (gross) is not statistically significant. These calculations were made using a simple averaging of fund yields in each investment category. The weighting of the yields according to the funds' market capitalization does not materially change the results. It was found that there is a persistence that is not high in the performance of mutual funds by fund manager - every 1 percent of excess yield between 2003 and 2005 explains about 0.28 percent of the excess yield between 2006 and 2008.
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