Faked Out by Mutual Funds?
June 1, 2017 - Mutual/Hedge Funds
Do investors view (mechanical) smart beta returns from mutual funds as (skillful) alpha? In the April 2017 update of their paper entitled “Fake Alpha”, Marcel Müller, Tobias Rosenberger and Marliese Uhrig-Homburg investigate the conflation of smart beta (“fake alpha”) and true alpha (incremental to smart beta and generated by skill) by mutual fund managers and investors. In estimating smart beta returns, they consider size, value and momentum factors. Using monthly returns for 3,292 actively managed mutual funds focused on U.S. stocks and contemporaneous market, size, book-to-market and momentum factor returns during March 1993 to December 2014, they find that: Keep Reading