טכניון מכון טכנולוגי לישראל
הטכניון מכון טכנולוגי לישראל - בית הספר ללימודי מוסמכים  
M.Sc Thesis
M.Sc StudentNeta Natalia Raikhman
SubjectEvaluation of Mutual Funds Managers Performance in Israel
Using Updated Financial Market Models
DepartmentDepartment of Industrial Engineering and Management
Supervisor Professor Trifon Raphael
Full Thesis text - in Hebrew Full thesis text - Hebrew Version


Abstract

A big part of Israeli people invest their money in mutual funds. This kind of investment makes it possible for people to invest in the capital market without professional information and expertise. The aim of this work is to try to estimate mutual funds performance in Israel and define factors that have an influence on Israeli mutual funds profitability by using modern capital market theory models. In the first part we examined mutual funds performance by comparing the observed returns of mutual funds to their normative returns - returns that mutual funds are supposed to yield according to their risk level. The sample includes monthly observations for 85 stocks from Tel-Aviv stock exchange and 72 mutual funds for the period of 1993-2004. The funds had been chosen by their risk level and by whether they were owned by a bank or private owners. For most of the funds the performance was below the expected theoretical return. These results are somewhat surprising and oppose the expectation about mutual funds that their managers are able to get higher returns. In spite of generally uninspiring results, we noticed consistently better-performing funds (within our sample). The mutual funds that stood out are “Analist Gmisha”, “Analist Stocks”, “Psagot Megama”, “Psagot bonds plus”, “Pekan Dukas”, “Dikla Solidit Bonds”. In the second part of the work, we tried to identify differences in Israeli mutual funds success by using multivariate analysis techniques. To define the number of factors that generate the fund returns, we examined the funds’ monthly returns by using the “principal component method”. As a result, we found four factors which jointly influence the funds’ returns, at different rates. That is to say: the power of factors’ effect is not identical. Therefore, we tried to rank the factors according to relative significance for the individual funds. We found one dominant factor for all of the sample mutual funds - the “market factor”, which is strongly correlated with the General Stock Index. Also, we found that “fund size” was a factor, but only for the “government bonds” group of funds. The mutual funds performance evaluation with different methods had shown the existence of more negative results (below normal) than positive results (above normal). In spite of that, the mutual funds are still making it possible for a private investor to diversify his capital into different channels but not at the highest attainable efficiency.