Fund activity and performance: A closer look at the Swedish mutual fund industry

Abstract

This paper investigates the level of fund activity and its e ect on fund performance on the Swedish market. By analyzing fund characteristics between 2005 to 2015, we find that among the active fund alternatives, the most active funds generates the highest level of alpha. These funds however, can still not beat index funds and are not able to predict positive returns compared to their benchmark. Further, we can conclude that an increasing fraction of explicit indexing increases the overall level of activity among active funds. Finally, we find that the passively managed funds that pretend to be active, i.e. closet indexers, do not seem to perform any worse compared to other fund categories in exception of the category active stock pickers. A finding contradictory to earlier studies and tells us that these funds have lowered their fees to a large extent. Investors should rather avoid investing in the categories factor bets and moderately active funds than closet indexers, since they have a high fee in proportion to their level of activity.