by Luyuan Fan

Abstract 

It has been widely debated whether managed funds outperform their index counterparts. Many scholars have carried out empirical testing for U.S. managed funds, but few have examined global funds. This study compares the total returns and risk-adjusted returns for 29 largest global funds with that of a basket of Vanguard indexes over 5 two-year periods from January 1997 to December 2006. We discover that the global funds outperform the basket of indexes before expenses. Also, the global funds outperform the indexes by an increasing amount in later periods than in earlier ones, implying accumulated experience and improved fund management skills of fund managers over time. Moreover, the average of the return differentials in favor of global funds in five periods is lower than the return differential over the entire 10-year period, indicating fund managers’ superior style-picking skills. After expenses, the indexes win on average, because most global funds have high expense ratios (of up to 2 %.) However, low cost global funds, such as the Vanguard Global Equity, make an exception.

Professor Edward Tower, Faculty Advisor

JEL Codes: E22,

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