Is local market insight a successful strategy for fund managers? A comparative study of Japan funds

Abstract

Background: Interest for fund investments in Sweden is high with 95% of the Swedish people own shares in some kind of a fund including the Swedish pension system (PPM). The need to evaluate the performances of such funds has therefore increased accordingly. Much research has been done in the area of fund evaluation for the past decades, but there still exists an inconsistency in the opinions of whether or not it is possible to find winning funds that are being able to outperform the market. The focus of this thesis lies on mutual funds with active investments strategies, but with in the Japanese market. When it comes to Japan funds in Sweden there are both Swedish and foreign managed alternatives available. The main part of the foreign managed investors differs from the Swedish managed since they are mostly branch located in Japan.

Purpose: The purpose of this thesis is to investigate how important market insight is for successful fund management by observing how strategies and performances differ between Swedish and foreign fund managers that invest in Japan funds. I will evaluate different fund managers to see if there is a winning fund that outperforms the others and try to clear out and come up with possible explanations to the result. If market insight really is a contributing performance factor then it should be natural that the foreign funds have an advantage and therefore performs better.

Methodology: In this thesis the hypothetical-deductive approach has been used where general theories work as a base for making conclusions about single observations in the empirical findings. I have utilized different theoretical models, available and often used for this type of fund evaluations, and compared how both Swedish managed as well as foreign managed Japan funds differ in performance.

Conclusion: By looking at the overall performance in terms of return the Swedish managed funds have surprisingly managed to highly outperform the foreign ones, even when making risk adjustments. Results after making this fund evaluation therefore fail to confirm that local market insight has any significant role in superior fund performance when it comes to the Japanese market.