Portfolio managers face the challenge to achieve excess returns comparative to a benchmark for their private or institutional clients. Researchers such as Fama and French (1992, 1996) or Lakonishok, Shleifer, and Vishny (1994) caused a stir with their findings that various investment styles tend to accomplish superior returns over a long-term horizon. Their findings proposed that value stocks tend to outperform growth stocks.
This bachelor thesis raises the question whether value or growth fund managers are able to achieve a persistent outperformance relative to their internal and external benchmark. The findings have a crucial influence on investors considering an investment into the equity market by an active or passive portfolio management approach.
Inhaltsverzeichnis (Table of Contents)
- 1 Introduction
- 1.1 Problem Definition
- 1.2 Course of the Investigation
- 2 Techniques and Principles of Value and Growth Investing
- 2.1 Introduction and Characterisation of Value and Growth Investing
- 2.2 Instruments to Determine the Investment Style
- 2.2.1 Price-to-Earnings Ratio
- 2.2.2 Price-to-Book Value Ratio
- 2.2.3 Price-to-Cash Flow Ratio
- 2.2.4 Dividend Yield
- 2.3 Classification of Value and Growth Stocks and Funds
- 2.3.1 Classification in Theory by Researchers
- 2.3.2 Classification in Practice by Financial Data Providers
- 3 Performance Evaluation of Value and Growth Investing
- 3.1 Development of the Value Premium
- 3.2 Reasons for the Value Premium
- 3.2.1 Rational Explanation
- 3.2.2 Behavioural Explanation
- 3.2.3 Random or Chance Occurrence Explanation
- 4 Equity Fund Managers' Capabilities to Generate Alpha
- 4.1 Problem Definition and Question of Analysis
- 4.2 Data Set Methodology
- 4.3 Performance Measurement Methodology
- 4.4 Results
- 4.4.1 Empirical Results of Equity Fund Managers' Capabilities
- 4.4.2 Further Empirical Results Provided by Academic Researchers
- 4.5 Reasons for the Outperformance of Growth Equity Funds
- 4.6 Recommendations for Investors Based on the Empirical Findings
- 5 Summary and Conclusion
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This thesis aims to determine whether value or growth fund managers consistently outperform their internal and external benchmarks. The study investigates the capabilities of equity fund managers to generate alpha, focusing on the performance of value and growth investing strategies. The findings will inform investors' decisions regarding active versus passive portfolio management approaches.
- Performance comparison of value and growth fund managers against benchmarks.
- Analysis of the value premium and its contributing factors.
- Examination of the methods used to classify value and growth stocks and funds.
- Investigation into the reasons for any outperformance observed.
- Recommendations for investors based on empirical findings.
Zusammenfassung der Kapitel (Chapter Summaries)
1 Introduction: This chapter introduces the central research question: Can value or growth fund managers consistently outperform their benchmarks? It highlights the existing research on the value premium and its implications for investor behavior. The chapter sets the stage by establishing the significance of achieving excess returns in portfolio management and outlines three hypotheses to be tested throughout the thesis.
2 Techniques and Principles of Value and Growth Investing: This chapter delves into the theoretical underpinnings of value and growth investing. It defines both investment styles, explaining the key metrics used to identify value and growth stocks (e.g., P/E ratio, P/B ratio, P/CF ratio, dividend yield). The chapter also examines how researchers and financial data providers classify these investment styles in theory and practice, providing a framework for understanding the distinctions and overlaps between them. The distinctions are crucial for the subsequent analysis of fund performance.
3 Performance Evaluation of Value and Growth Investing: This chapter explores the historical performance of value and growth investing strategies. It details the development of the value premium—the tendency for value stocks to outperform growth stocks—and examines various explanations for this phenomenon. These explanations range from rational economic models to behavioral biases influencing investor decision-making, encompassing both efficient market and market inefficiency perspectives. The chapter lays a critical foundation for evaluating the performance of fund managers in subsequent chapters.
4 Equity Fund Managers' Capabilities to Generate Alpha: This chapter presents the empirical analysis. It describes the methodology used to evaluate the performance of value and growth equity funds, including the data sets employed and the performance metrics utilized. The chapter then presents the results of the empirical analysis, comparing the performance of value and growth funds against their internal and external benchmarks. The findings will likely reveal whether either style consistently generates alpha and inform the recommendations provided in the subsequent chapter.
Schlüsselwörter (Keywords)
Value investing, growth investing, alpha generation, equity fund managers, benchmark performance, value premium, portfolio management, active investing, passive investing, empirical analysis, financial ratios, P/E ratio, P/B ratio, P/CF ratio, dividend yield.
Frequently Asked Questions: A Comprehensive Language Preview on Value and Growth Investing
What is the main research question addressed in this thesis?
The central research question is whether value or growth fund managers consistently outperform their internal and external benchmarks. The study investigates the capabilities of equity fund managers to generate alpha, focusing on the performance of value and growth investing strategies.
What are the key themes explored in this thesis?
Key themes include a performance comparison of value and growth fund managers against benchmarks; analysis of the value premium and its contributing factors; examination of methods used to classify value and growth stocks and funds; investigation into reasons for any observed outperformance; and recommendations for investors based on empirical findings.
What investment strategies are compared in this study?
The study compares the performance of value and growth investing strategies. It examines how these strategies are classified by researchers and financial data providers, using metrics such as the Price-to-Earnings (P/E) ratio, Price-to-Book (P/B) ratio, Price-to-Cash Flow (P/CF) ratio, and dividend yield.
How is the performance of value and growth investing evaluated?
The thesis explores the historical performance of value and growth investing strategies, detailing the development of the value premium. It examines explanations for this premium, ranging from rational economic models to behavioral biases. The empirical analysis evaluates the performance of value and growth equity funds against internal and external benchmarks.
What are the different explanations for the value premium?
The thesis explores several explanations for the value premium, including rational economic models, behavioral biases influencing investor decision-making, and the possibility of it being a random occurrence. This covers both efficient market and market inefficiency perspectives.
What methodology is used in the empirical analysis?
The empirical analysis describes the methodology used to evaluate the performance of value and growth equity funds, including the data sets employed and the performance metrics utilized. The results compare the performance of value and growth funds against their internal and external benchmarks.
What are the key findings and recommendations for investors?
The findings of the empirical analysis reveal whether either value or growth investing styles consistently generate alpha (excess returns). Based on these findings, the thesis provides recommendations for investors regarding active versus passive portfolio management approaches.
What are the key chapters and their contents?
The thesis includes chapters on Introduction (problem definition and research question), Techniques and Principles of Value and Growth Investing (defining and classifying the styles), Performance Evaluation of Value and Growth Investing (exploring the value premium), Equity Fund Managers' Capabilities to Generate Alpha (empirical analysis and results), and Summary and Conclusion.
What keywords are associated with this thesis?
Keywords include value investing, growth investing, alpha generation, equity fund managers, benchmark performance, value premium, portfolio management, active investing, passive investing, empirical analysis, financial ratios, P/E ratio, P/B ratio, P/CF ratio, and dividend yield.
- Quote paper
- Thomas Müller (Author), 2012, Value versus Growth - An Empirical Analysis of Equity Fund Managers´ Capabilities to Generate Alpha, Munich, GRIN Verlag, https://www.grin.com/document/192205
