Nordic Fund Markets

105 emerging markets. This conclusion is drawn based on the statistically significant negative

relationship between management fees and the performance of the funds.

For the Nordic markets the conclusions are very much the same as the original conclusions. There seems to be a slight positive relationship between fee and return, but it is far from significant with p-values as high as 0.77 and 0.78, which can be seen in appendix 18. Also, the R-squared p-values are much lower for the Nordic markets now, implying the same as for emerging markets above, that using the global index was the right decision in the first place, as the model estimated using this index has significantly higher R-squared values, meaning it explains the variation in the data much better.

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Table 6.5: Overview table of regression figures using Swiss fund data

Worth noting in the table is that there are quite few funds focusing on emerging markets and no funds focusing on emerging markets and on the asset classes Mixed assets and Money markets.

Almost 80% of all the funds are focused on the Swiss market and the global market, making the analysis of these more reliable compared to the ones for emerging markets.

Using this data and the same methodological approach used for the original analysis gives the same overview table as provided in the summary of the empirical findings, table 5.23. A similar table, table 6.6, can be seen below with the exact same format which eases the comparison between the obtained results. The full output for each regression can be seen in appendix 19.

As mentioned earlier, this extension is done to be compared to the original, meaning that it is done using the original choices of a time horizon of five years and using global indices, which the original analysis was extended with in the previous paragraphs. The results using Swiss fund data is seen below.

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Table 6.6: Overview table of regression figures using Swiss fund data

One of the main ideas behind this is that for the Swiss data Switzerland can be used as a home market just like the Nordic markets were used in the original regressions. This means that the conclusions can be compared in a way that if these regressions show the same for Switzerland as the original regressions did for the Nordic markets, then there is a clear indication about how fund fees are related to performance for home markets, whether they seem to perform better, the higher the fee or vice versa.

The first important observation from the table above is that the R-squared values are much smaller than the ones observed for the Nordic funds. It is very surprising that there is that big a difference.

The main takeaway from that is that the model seems to fit the Nordic funds much better when trying to explain variance in return using this methodology. The fact that the R-squared values are that much lower means that the conclusions drawn are less reliable, simply because the model fits the data to a much lower extent. That said, the main area of interest is the conclusions regarding the fee variable and significance of the coefficient estimate. The conclusions drawn regarding that will still be trusted in the following.

108 The conclusion regarding significance of the fee coefficient estimate are for many of the regressions the same. For regression 3, 4, 6, 7 and 8 the conclusions have changed, meaning that for regressions 3, 4, 7 and 8 the fee coefficient estimate is now insignificant whereas it was significant before. For regression 6 the coefficient estimate is now significant. The most interesting of this is regression 3 and 4, which concludes that for Swiss equity-focused funds there is no significant relationship between the fee of the fund and the return it delivers on a general level, meaning that regression 3 and 4 includes all equity-focused funds and are not focused on a specific geographical region. This conclusion is different to that of the Nordic funds, where a significant negative relationship was found. Relating this to active versus passive investing means that for Swiss funds investors should have no preference between actively and passively managed equity-focused funds, as there is no significant relationship between the fee and the performance found in the data.

Other than that, the table shows that the conclusions regarding the home market, in this example the Swiss market are the same as for the Nordic funds. The conclusion is that there seems to be no relationship between the fee of equity-focused funds and the return of these funds for funds focusing on their home market. This strengthens the conclusions obtained for the Nordic funds, as this is not only relevant for Nordic funds but seems to be a thing which can be highly generalized.

Generalizing this to active and passive investing gives the indication, that for equity-focused funds investing in home markets, investors should not prefer passively managed funds over actively managed funds.

Lastly, it is worth noting that for equity-focused funds focusing on Emerging markets and global markets the conclusions are the same. This means that the regressions for Emerging markets are unable to find any significant relationship between the fee of the fund and the return it delivers. On the contrary to that, the regressions involving equity-focused funds focusing on global markets find a significant negative relationship between fee and return. These two conclusions are the same as the ones drawn in the original analysis. Relating this back to the discussion of active versus passive investing it means that investors should not prefer passively managed equity-focused funds to actively managed equity-focused funds in emerging markets, while on global markets investors should prefer passively managed equity-focused funds to actively managed equity-focused funds.

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