Excess Corporate Cash and Mutual Fund Performance by Shay E. Richardson EdM, Argosy University, 2014 MBA, Philadelphia University, 2006 BA, New Jersey Institute of Technology, 2004 Doctoral Study Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Business Administration

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Excess Corporate Cash and Mutual Fund Performance

Purpose This study investigates how healthcare funds differ from healthcare ETFs in terms of delivering positive alpha, beta, and hedging against a market downturn risk. We consider which vehicle is more effective in providing diversification within the healthcare sector and to what extent can investors gain by diverting a portion of their holdings in the S&P 500 index fund into either a value-weighted healthcare fund portfolio or ETFs. Design/methodology/approach Pooled and individual regressions are employed to estimate single and four factor models of 132 healthcare mutual funds and 43 healthcare ETFs over the past four decades. We performed additional regressions to test the performance of mutual funds and ETFs relative to market volatility, market downturns, and policy influence. Findings We find that both healthcare funds and ETFs provide significantly positive average alpha and hedge against a market downturn risk. Holding an all-stock portfolio such as the S&P 500 index fund can be improved by sim...

Investing in the healthcare sector: mutual funds or ETFs

Specialty mutual funds, such as health care funds, offer an investor the opportunity to focus on high total return, income, and further diversification within a specific industry. Although extensive research has been conducted on mutual fund performance as well as other specialty mutual fund performance, little research has focused on the performance of health care mutual funds. This article seeks to decode the characteristics of health care mutual funds and their performance by examining their risk-adjusted rate of return from 2001 to 2018. The authors find that, on average, equally weighted portfolios of health care mutual funds did not perform better relative to Dow Jones Health Care Index. Net four-factor alphas of health care mutual funds were positive but insignificant. In addition, based on the two performance models studied, these categories of funds have not consistently created positive net alphas for their investors over longer time periods, such as measured the 2001–2018 period. TOPICS:Mutual fund performance, wealth management Key Findings • Specialty mutual funds, such as health care, offer an investor the opportunity to focus on high total return, income, and further diversification within a specific industry. • We found that, on average, on the basis of risk-adjusted returns, equally weighted portfolios of health care mutual funds did not perform better relative to Dow Jones Health Care Index, but they did outperform Dow Jones Total Market and CRSP Value weighted index. • In addition our results indicated that, based on the four-factor alpha model used in our study, health care mutual funds did not have significantly positive net alphas for their investors over the period of this study (January 2001–December 2018).

Do Health Care Mutual Funds Provide Healthy Risk-Adjusted Returns?

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.

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

ABSTRACT Studies of financial markets have shown markets inefficiently underreacting to surprise information, discounting it too heavily in the short term. This paper explores this phenomenon in a new but analogous setting: Major League Baseball. I analyze how surprise information – the deviation between a team’s realized win total and the preseason expectations of betting markets – is incorporated into the teams’ personnel investments and into betting markets. Using fixed effect panel regressions, I find that higher win totals are associated with increased investment in the following season (as measured by team payroll and investment in free agents) and that, conditional on win totals, underperforming (overperforming) expectations in the prior season is associated with more (less) investment. This is consistent with teams discounting some of the surprise information. The effect is more pronounced for teams near the threshold of a playoff appearance. I find that some discounting is rational since roughly 27% of the gap between realized performance and expected performance does not persist into the following season. I find no evidence that betting markets are inefficient in their incorporation of surprise information. However, estimates suggest that teams significantly underreact to surprise information, an inefficiency analogous to those observed in financial markets.

R. Wayne Saubert

Papers

Performance and Persistence of Performance of Healthcare Mutual Funds