The popularity of funds that replicate a market performance continue to surge and several literatures have documented the superiority of index funds outperforming their active fund management counterparts. Most of these studies have been based on data from developed, emerging and frontier economies including the USA, Britain, France, Japan, India and many other countries. This study joins the debate by analysing Ghana specific data to measure the performance of Ghanaian fund managers from 2006 to 2013.
This is the first of such analysis in the Ghanaian context. Using aggregate average returns, Sharpe ratio and Jensen’s Alpha based on the Capital Asset Pricing Module (CAPM) as the key performance indices, the study finds that fund managers in Ghana by aggregation do not provide superior returns using the GSE composite index as the market return benchmark and that fund managers on average have underperformed the market during the period of study. The aggregate of their performance further worsen on a risk adjusted returns after factoring in fund managers cost.
This notwithstanding, some fund managers on a risk adjusted average return basis outperformed the market return albeit funds with an asset allocation portfolio of not less than 60% equity. Although the Ghanaian economy exhibit signs of a frontier market, the research observed fund managers in Ghana do not exhibit market timing skills and stock selection abilities that would have made them outperform the market. Evidence of superior performance persistence is also not noticeable but consistency in underperformance is observed.
The outcome of this work indicate superior outperformance by replicating the GSE composite index as compared to active fund management and adds to the existing works that suggest the failure of active fund management to outperform their benchmark over a continuous period.
Table of Contents
CHAPTER ONE
1.1 Introduction to the Ghanaian Economy, Fund Management, and Stock Exchange
1.1.1 The Concept of “Zero Sum Game” and Mutual Funds
1.2 Research Aim
1.3 Research Questions and Key Hypothesis
1.4 Dissertation Outline
CHAPTER TWO
2.1 Literature Review
2.1.1 Background to Index Funds
2.1.2 The Active/Passive Debate
2.1.3 Picking Fund Manager with Persistent Performance and the Predictability of Index Funds
2.1.4 Fund Managers Performance: Market Timing Skills or Luck?
2.1.5 The Continuous Popularity of Active Fund Management
2.1.6 Impact of Leadership, Market Segment and Market Cyclicality on Performance
2.1.7 Diversification and Index Funds
2.1.8 Active Share and Closet Index
2.1.9 The Ghana Stock Exchange
2.2 Summary of Literature Review
CHAPTER THREE
3.1 Research Methodology
3.2 Mutual Funds and Unit Trusts Industry in Ghana and Research Sample Size
3.2.1 Summary of Collective Investment Schemes Year on Year from 2006
3.3 Specific Data Used and Their Sources
3.4 Conduct of Analysis
CHAPTER FOUR
4.1 Data Analysis, Findings and Discussion of Findings
4.1.1 Performance of Funds with Data from 2006
4.1.2 Performance of funds with continuous 2 year data within 2006 and 2013
4.1.3 Fund Manager Efficiency
4.1.4 Summary of Returns Based on Absolute Averages
4.1.5 Performance Analysis Based on Jensen’s Alpha and Sharpe Index
4.1.6 Alpha and Sharpe Ratios before Cost
4.1.7 Alpha and Sharpe Ratio after Cost
4.1.8 Analysis of Funds with Continuous Data from 2006
4.1.9 Evidence of persistent performance
4.1.10 Portfolio Allocation and Performance
4.2 Research Hypothesis
CHAPTER FIVE
5.1 Summary of Findings and Conclusions
5.2 Summary of Key Findings and Contribution of Research Work
5.3 Further Studies and Study Limitations
Research Goals & Themes
The core objective of this study is to evaluate the performance of Ghanaian investment fund managers between 2006 and 2013 by comparing their returns against the Ghana Stock Exchange (GSE) composite index, thereby determining whether active fund management or passive index replication is more effective in the Ghanaian market context.
- Performance assessment of active fund management in Ghana.
- Comparison of mutual fund returns against the GSE composite index.
- Analysis of risk-adjusted performance using Sharpe ratios and Jensen’s Alpha.
- Investigation into market timing skills and stock selection abilities of local fund managers.
- Impact of fund costs on investor returns.
Excerpt from the Book
1.1 Introduction to the Ghanaian Economy, Fund Management, and Stock Exchange
The Ghanaian economy has tremendously grown within the last three decades to become a lower middle income economy (The World Bank, 2014) and has had a direct impact on the growth of the financial system. According a PWC Ghana report, the financial sector grew in deposit mobilization by an average rate of 28% between 2008 and 2012 (2014 banking survey). This growth has however been characterized by fierce competition with one another to grow their respective deposits.
Unlike previously where the financial sector was predominately dominated by the commercial banks, the competition has widen to include finance houses, savings and loan companies, micro finance institutions, and collective schemes. Though the Ghanaian economy has opened up over the last three decades, financial investment opportunities were limited to traditional investment (Arboh, 2008) like treasury bills, bank deposits, debentures with finance houses. However, the trend is changing with investors looking for alternatives that provides higher returns on their investments. Mutual funds over the periods have been seen by many investors as that alternative (Arboh, 2008). The seemingly limited financial investment opportunities and the fact that retail investors lack the sophistication and skills to effectively put their funds into profitable investment led the emergence of Investment fund management in Ghana. Investment funds are sold in units and the fund manager serves as the centre that brings together individual funds as one aggregate investment giving the unit holder the advantage of economies of scale which would almost not be possible without the aggregation (Costa, 2011). Aside from the benefit of economies of scale including diversification, efficiency and benefit of professional management, investment funds are expected to relieve the investor from the burden of deciding how and where to invest and the professional fee paid is to enable the professional investor deal with such 'troubles'.
Summary of Chapters
CHAPTER ONE: This chapter introduces the Ghanaian economic and financial landscape, establishing the necessity for fund management and outlining the research aims, questions, and hypotheses.
CHAPTER TWO: Provides a comprehensive literature review covering the global active vs. passive investment debate, the history of index funds, performance metrics, and the specific characteristics of the Ghana Stock Exchange.
CHAPTER THREE: Details the research methodology, data collection sources regarding collective investment schemes in Ghana, and the statistical tools used, such as CAPM, Sharpe ratio, and Jensen’s Alpha.
CHAPTER FOUR: Presents the primary data analysis and findings, evaluating the performance of funds against the GSE composite index, examining manager efficiency, and testing the research hypotheses.
CHAPTER FIVE: Summarizes the key research findings and conclusions, offering insights into the performance of Ghanaian fund managers and identifying limitations and areas for future study.
Keywords
MUTUAL FUNDS, ACTIVE MANAGEMENT, INDEX FUNDS, GHANA, PERFORMANCE-MEASUREMENT, GSE COMPOSITE INDEX, JENSEN’S ALPHA, SHARPE RATIO, CAPITAL ASSET PRICING MODEL, MARKET TIMING, STOCK SELECTION, PERSISTENT PERFORMANCE, FRONTIER MARKET, COLLECTIVE INVESTMENT SCHEMES, ASSET ALLOCATION
Frequently Asked Questions
What is the primary focus of this research?
This research evaluates the performance of investment fund managers in Ghana between 2006 and 2013 to determine whether they provide superior returns compared to the Ghana Stock Exchange (GSE) composite index.
What are the main thematic areas covered?
The study covers the active versus passive management debate, performance measurement techniques (Sharpe ratio and Jensen's Alpha), market timing skills, the impact of costs, and portfolio diversification strategies.
What is the core research question?
The research asks if there is a significant difference between buying stocks that replicate the GSE composite index and investing through active fund managers, specifically focusing on whether fund managers add value through their investment decisions.
Which methodology is employed in the study?
The study uses quantitative analysis, employing the Capital Asset Pricing Model (CAPM) to calculate Jensen’s Alpha and utilizing Sharpe ratios to assess risk-adjusted performance across collected data from collective schemes.
What topics are discussed in the main body?
The main body explores the literature on index funds, analyzes the data collected from Ghanaian mutual funds and unit trusts, compares these returns against the market benchmark, and discusses the implications of these findings for investors and managers.
How can the key findings be characterized?
The findings show that, on average, Ghanaian fund managers underperform the market benchmark, particularly after adjusting for costs, and that the sector lacks effective market timing and stock selection skills.
Why are there virtually no index funds on the Ghanaian market?
The research notes that while indexing is popular globally, it is largely unknown in Ghana, where the financial environment is still developing and fund managers primarily focus on speculative strategies and money market instruments.
Does the research conclude that active management is completely inefficient in Ghana?
The study does not claim absolute inefficiency but suggests that given the current data and market constraints, the aggregate performance of active managers fails to consistently beat the market, thereby questioning the value added by these managers after expenses.
- Arbeit zitieren
- Dickson Osei (Autor:in), 2015, Active and passive fund management. A look at fund management performance against the Ghana stock exchange (GSE) composite index, München, GRIN Verlag, https://www.grin.com/document/354531
