Investing in U.S. Sectors: Mutual Funds vs. ETFs

Abstract

This paper examines performance of 95 actively managed U.S. sector equity mutual funds from 29 fund families relative to their peer exchange-traded funds, SPDR sector ETFs, in the period of 2008 to 2017. Our results do not show considerable evidence that actively managed sector mutual funds outperform their passive counterparties. None of the mutual fund portfolios produces a significant positive alpha through factor models or delivers a significant positive alpha against their peer ETFs. When focusing on the 9 oldest actively managed Fidelity sector mutual funds, outperformance in the period of 1999-2010, which is reported in literature, appears to fade away during the period of 2011-2017. Alpha analyses of a larger sample of 60 sector mutual funds show similar performance deterioration in the same 19-year period. The results indicate that U.S. sector equity market has become more efficient in the past decade.

Keywords: Mutual Fund Performance, Active Mutual Fund Management, Sector Investing

JEL Classification: G11, G12