Persistence and Domiciled Mutual Fund Managers Performance: Evidence for South Africa

This paper presents an overview of the South African domiciled mutual fund industry and studies mutual fund performance using a survivorship bias-free sample of 2,843 share class of funds. 4-factor asset-pricing model is used to measure performance, and an additional two factors from the recent framework have been considered [1,2]. This study is able to provide further evidence on the performance of open-end mutual fund managers in a notable emerging market, South Africa. This paper investigates whether mutual fund managers’ inability in developed markets to beat the market, which has been widely proved, also holds in less developed markets. Furthermore, we examine if South African fund managers exhibit persistence in performance. The negative net alpha for South African domiciled mutual fund managers shows that they underperform their respective market benchmarks and are not able to add value. Lastly, consistent with results in developed markets, for all portfolios with different magnitudes, the paper reveals a persistence in performance; however, the effect is attributed to "icy-hands" rather than "hothands."