Performance measurement and attribution analysis : the Maltese capital markets

Abstract

This study seeks to measure and analyse the performance of mutual funds domiciled in Malta through attribution analysis, decomposing the sources of a portfolio manager’s returns into stock selection abilities, asset allocation abilities, and currency effects. Stock holdings were analysed on a semi-annual basis for two local funds over a period of ten-years and six-years using Bloomberg’s Relative Performance and Attribution Analysis tool. The results suggest that from the two funds analysed, the portfolio managers’ sector allocation skills have been the highest contributors to the funds’ performance. The managers’ skills in selecting stocks have been overall either neutral, such as in the Vilhena Far East Opportunities Fund (VFEOF), or overall negative such as in the Vilhena Global Themed Fund (VGTF). Thus, even though the manager would have selected the correct weightings with regards to benchmark sectors, i.e. overweighting sectors with superior returns and underweighting sectors with inferior returns, the choice of stocks from each sector were not optimal. Regardless, the findings support the value of active investment management due to the higher factor contribution returns and overall appreciation of the Net Asset Values.