Do Managers Of Global Equity Funds Outperform Their Respective Style Benchmarks? Evidence From South Africa

Abstract

The results of our prior research on internationally-domiciled global equity funds suggest that active managers do not provide economic benefits, in addition to their underlying investment style benchmarks. This finding implies that the performances of global equity funds are derived mainly from the broad investment styles followed by the active managers rather than the stock-picking activities of the managers. We replicate our earlier research to investigate the performances of the six well-established global equity funds in the South African unit trust industry. Our results indicate that four out of the six South African fund managers under examination substantially underperform their passively-replicated style benchmarks. Our prior study results indicate that there is no significant difference between the performances of the internationally-domiciled global equity funds and their respective style benchmarks. By contrast, the stock-picking decisions of the South African fund managers are found to destroy value created by their respective style benchmarks in this study. Our findings suggest that investors who wish to follow particular investment styles would be better off by investing in exchange traded funds (ETF) that passively track the performances of their mandated investment styles in the global equity market with minimal costs.