Returns and their persistence from investing in active Long Term Equity Funds and active equity Retirement Funds

Abstract

This study examines returns and their persistence of 48 active Long-Term Equity Funds (LTFs) and 26 active Thai equity Retirement Mutual Funds (RMFs) during 2002-2017. The average net returns (including dividends and after expense deduction) of both LTF and RMF funds under study are lower than the SET (Stock Exchange of Thailand) average total return by about 2% -3% per year. The average Alphas from Capital Asset Pricing Model (CAPM) of LTF and RMF funds are -1.28% per year and -0.34% per year, respectively. About 12 LTF funds out of the total of 48 LTF funds have positive Alphas, but no LTF fund has a statistically significant, positive Alpha. There are 10 RMF funds with positive Alphas from a total of 26 RMF funds, with 1 RMF fund with a statistically significant, positive Alpha. This study also shows that the returns of both LTF and RMF funds have no clear persistence. This is because the strategy of buying the top-performance funds during the last three years can beat the market over the next three years for some certain periods. Finally some of the top-5 or top-20 funds during the past three years are able to maintain their top ranking over the next three years. Therefore, the good performance of funds in the past is not a reliable indicator of their future good performance.