Carhart and Q-Factor Views of Mutual Fund Performance

ABSTRACT This study evaluates the performances of 321 Malaysian equity mutual funds for the period of June 1998 to May 2015. These mutual funds appear to generate an average monthly rate of 0.6878 percent (8.25% per annum), a performance close enough to that of the market (8.42% per annum). The Jensen’s alphas show that only around 22 percent of these funds significantly outperform the market. While multifactor models are expected to produce better explanatory power, Carhart rather than q-factor model seems to fit the Malaysian funds data better. The results reveal that (i) funds’ returns are closely linked to market performance, (ii) effect of fund managers’ stock selection and market timing skills are both weak and insignificant on fund performance, (iii) of the five investment styles exhibited in these multifactor models, only value (HML) and profitability (RMW) have gained attention from fund managers, (iv) adoption of RMW tend to give an equal chance of deteriorating and improving funds’ returns. The results of this study in general imply that investors might be better off investing in the equity market directly and passively through index-tracking and buy-and-hold strategies that are less costly. Keywords: Mutual funds; Jensen’s alpha; Carhart model; q-factor model; stock selection; market timing; investment styles; multifactor model ABSTRAK Kajian ini menilai prestasi 321 dana amanah ekuiti Malaysia bagi tempoh Jun 1998 hingga Mei 2015. Dana amanah ini didapati menjana kadar pulangan bulanan 0.6878 peratus (8.25% setahun), satu prestasi yang hampir sama dengan prestasi pasaran (8.42% setahun). Nilai alpha Jensen menunjukkan hanya sekitar 22 peratus daripada dana amanah tersebut mengatasi prestasi pasaran secara signifikan. Walaupun model-model multifaktor dijangka menghasilkan kuasa jelas yang lebih tinggi, model Carhart didapati lebih sesuai bagi data dana amanah Malaysia berbanding model faktor q. Dapatan kajian menunjukkan (i) pulangan dana amanah berkait rapat dengan prestasi pasaran, (ii) kesan pemilihan saham dan pemasaan pasaran terhadap prestasi dana adalah lemah dan tidak signifikan, (iii) daripada lima gaya pelaburan yang diuji dalam model-model multifaktor tersebut, hanya gaya nilai (HML) dan keuntungan (RMW) mendapat perhatian dari pengurus dana, dan (iv) penggunaan RMW bagaimanapun cenderung menunjukkan peluang yang sama untuk meningkat dan menyusutkan pulangan dana. Penemuan kajian ini umumnya menyarankan pelabur mempunyai peluang yang lebih baik dalam pasaran saham dengan melabur secara langsung dan secara pasif melalui pengguaan strategi mengikut indeks dan beli-dan-pegang yang kosnya sangat rendah. Kata kunci: Dana amanah; alpha Jensen; model carhart; model faktor q; pemilihan saham; pemasaan pasaran; gaya pelaburan; model multifactor