The Impact of Total Expense Ratio on Risk-Adjusted Returns in Swedish Actively Managed Equity Funds

Abstract

This thesis examines the relationship between the fund’s total expense ratio (TER) and its risk-adjusted performance. 81 unique funds are included, all registered in Sweden, have their investment focus set to Sweden, are equity funds, and are actively managed. The measures used for risk-adjusted performance are Sharpe ratio, Treynor ratio and Jensen’s alpha, they’re all calculated based on the fund’s daily NAV-prices, adjusted for fees, between January 2020 to December 2024. Each fund’s yearly beta is calculated based on the benchmark index OMXS30 and the risk-free rate used in the models is the average yield of the 1-month Swedish Treasury Bill. The relationship between total expense ratio (TER) and risk-adjusted performance was examined using two regression models, Pooled OLS and Fixed effects. Using an F-test to compare the two models, the fixed effect model was shown to be the best fit for all three regressions. Based on the fixed effect regressions, the total expense ratio (TER) had a negative impact on the risk adjusted performance. In all three regressions, the variable is statistically significant at a 10% significance level. This shows that higher TER is expected to reduce the equity funds risk-adjusted performance.