A critical analysis of the performance of collective investment schemes listed on the Malta Stock Exchange

Abstract

Foreign studies revealed that investors’ decision to invest in actively managed funds is driven by the fund’s past superior performance and the perception created by financial firms that investing in actively managed funds is easier and profitable. Retail investors may not be aware that, the performance reported by the fund does not take into account sales loads. The main research question is to critically analyse the performance of actively managed funds in Malta, after considering all fees, and assess whether these funds would have beaten a passive investment strategy. In reaching the objectives of this study, we have selected twelve actively managed funds listed on the Malta Stock Exchange during the period 2009 till 2013. Quantitative research has been utilised based on the funds’ prospectuses and offering supplements, data published by the Malta Stock Exchange, together with the funds’ audited financial statements. This study has revealed that the fee paid to the manager to manage the investments can represent a significant burden on the fund’s performance. However, there have been instances where management fees had a small effect. As regards sales loads, this study concludes that although they dilute the real return to the investor, on average, their effect on the fund’s performance is minimal. To identify whether the manager is adding value to the investor, we have noted that all funds except one have managed to provide an increase in value on the investment, considering all fees. However, when the performance is compared to the relative benchmark, only 50% of the sample have managed to beat the market. Moreover, the average percentage by which the funds overperformed the market was minimal (2.47%) when compared to the underperforming funds (8.09%), implying that there can be a case for passively managed index funds in Malta.