Portfolio turnover and performance of equity investment funds in Brazil

Silva, Sabrina Espinele da; Roma, Carolina Magda da Silva; Iquiapaza, Robert Aldo

doi:10.1590/1808-057x201909420

Acessibilidade / Reportar erro

Brasil

Revista Contabilidade & Finanças

Español English

Brasil

Español English

sumário « anterior atual seguinte »

Sumário

Original Article • Rev. contab. finanç. 31 (83) • May-Aug 2020 • https://doi.org/10.1590/1808-057x201909420 copy

Portfolio turnover and performance of equity investment funds in Brazil^* * The authors are grateful to the Fundação de Amparo à Pesquisa do Estado de Minas Gerais (Research Support Foundation of the State of Minas Gerais - Fapemig) for its financial support in carrying out this research.

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

The purpose of this paper was to analyze the relationships between the portfolio turnover and performance of equity investment funds in Brazil. There are few published studies on the subject, but the previously identified Brazilian studies that have examined making changes to portfolios have been limited to very restricted data samples and have only worked with an ordinary least squares (OLS) model without taking into account the indications of international studies and economic theory itself of the possible endogeneity of turnover, which would make OLS estimation inadequate. The expressive growth of the fund industry in the Brazilian market shows the relevance of the object of research. Two portfolio turnover metrics were analyzed: one based on changes in the monetary values of the assets and another based on changing the weights of the assets in the portfolio. The estimations were performed for fixed effects panel data and then for a two-stage least squares model, using instrumental variables. The funds that make up the sample are those classified as “free shares” in the period from January of 2012 to January of 2018. The results showed that there is a positive relationship between the portfolio turnover and performance of the equity investment funds, showing that managers have been able to take advantage of moments of mispricing in the market and that they carry out more trades in search of higher returns. This research extends the results in the literature as it shows that there is a positive relationship between the turnover and performance of equity investment funds that is independent of the way turnover or performance are measured, which has shown inconclusive results in previous studies. Furthermore, it presents evidence for a more representative and current sample in an emerging market.

Keywords
portfolio turnover; performance; investment funds

Study	Market	Period	Result
Ippolito and Turner (1987Ippolito, R. A., Turner, J. A. (1987). Turnover, fees and pension plan performance. Financial Analysts Journal, 43(6), 16-26. https://doi.org/10.2469/faj.v43.n6.16 https://doi.org/10.2469/faj.v43.n6.16... ), pension funds	United States	1977-1982	Negative relationship between the stock turnover and performance of funds, but not verified in the mutual fund industry.
Golec (1996Golec, J. H. (1996). The effects of mutual fund managers’ characteristics on their portfolio performance, risk and fees. Financial Services Review, 5(2), 133-147. https://doi.org/10.1016/S1057-0810(96)90006-2 https://doi.org/10.1016/S1057-0810(96)90... ), growth, growth and income, small stocks, and others	United States	1988-1990	Demonstrated that there is not a significant relationship between turnover and performance in equity investment funds.
Wermers (2000Wermers, R. (2000). Mutual fund performance: An empirical decomposition into stock picking talent, style, transactions costs, and expenses. The Journal of Finance, 55(4), 1655-1695. https://doi.org/10.1111/0022-1082.00263 https://doi.org/10.1111/0022-1082.00263... ), equity funds	United States	1975-1994	Funds with a high turnover ratio also hold stocks with significantly higher average returns compared with funds with a low turnover ratio.
Cremers and Petajisto (2009Cremers, K. J. M., & Petajisto, A. (2009). How active is your fund manager a new measure that predicts performance. Review of Financial Studies, 22(9), 3329-3365. https://doi.org/10.1093/rfs/hhp057 https://doi.org/10.1093/rfs/hhp057... ), equity funds	United States	1980-2003	They argue that in funds from the highest active share quintile there has been significant performance persistence (measured by the benchmark-adjusted return) of equity funds.
Milan and Eid (2014Milan, P. L. A. B., & Eid, W., Jr . (2014). Elevada rotatividade de carteiras e o desempenho dos fundos de investimento em ações. Revista Brasileira de Finanças, 12(4), 469-497.), equity funds	Brazil	2007-2011	Negative relationship between a high turnover of assets in the fund’s portfolio and its performance.
Vidal et al. (2015Vidal, M., Vidal-García, J., Lean, H. H., & Uddin, G. S. (2015). The relation between fees and return predictability in the mutual fund industry. Economic Modelling, 47(C) 260-270. https://doi.org/10.1016/j.econmod.2015.02.036 https://doi.org/10.1016/j.econmod.2015.0... ), equity funds	United States	1962-2012	Funds with a high turnover also have the highest expected return.
Pástor et al. (2017Pástor, L., Stambaugh, R. F., & Taylor, L. A. (2017). Do funds make more when they trade more? Journal of Finance, 72(4), 1483-1528. https://doi.org/10.1111/jofi.12509 https://doi.org/10.1111/jofi.12509... ), equity funds	United States	1979-2011	Turnover positively predicts benchmark-adjusted return.
Champagne et al. (2018Champagne, C., Karoui, A., & Patel, S. (2018). Portfolio turnover activity and mutual fund performance. Managerial Finance, 44(3), 326-356. https://doi.org/10.1108/MF-01-2017-0003 https://doi.org/10.1108/MF-01-2017-0003... ), equity funds	United States	1991-2012	Negative relationship between the modified turnover and future performance of funds.

Id	Variable	Operationalization	Sign	Reference
1	MT	Fund portfolio turnover according to that specified in the preceding section	+	Wermers (2000Wermers, R. (2000). Mutual fund performance: An empirical decomposition into stock picking talent, style, transactions costs, and expenses. The Journal of Finance, 55(4), 1655-1695. https://doi.org/10.1111/0022-1082.00263 https://doi.org/10.1111/0022-1082.00263... ), Vidal et al. (2015Vidal, M., Vidal-García, J., Lean, H. H., & Uddin, G. S. (2015). The relation between fees and return predictability in the mutual fund industry. Economic Modelling, 47(C) 260-270. https://doi.org/10.1016/j.econmod.2015.02.036 https://doi.org/10.1016/j.econmod.2015.0... ), Pástor et al. (2017Pástor, L., Stambaugh, R. F., & Taylor, L. A. (2017). Do funds make more when they trade more? Journal of Finance, 72(4), 1483-1528. https://doi.org/10.1111/jofi.12509 https://doi.org/10.1111/jofi.12509... )
2	FundAge	Control variable represented by the fund’s age	+	Golec (1996Golec, J. H. (1996). The effects of mutual fund managers’ characteristics on their portfolio performance, risk and fees. Financial Services Review, 5(2), 133-147. https://doi.org/10.1016/S1057-0810(96)90006-2 https://doi.org/10.1016/S1057-0810(96)90... ), Milani and Ceretta (2013Milani, B., & Ceretta, P. S. (2013). Efeito tamanho nos fundos de investimento brasileiros. Revista de Administração da UFSM, 6(1), 119-138. https://doi.org/10.5902/198346593607 https://doi.org/10.5902/198346593607... ), Alda et al. (2017Alda, M., Andreu, L., & Sarto, J. L. (2017). Learning about individual managers’ performance in UK pension funds: The importance of specialization. North American Journal of Economics and Finance, 42, 654-667. https://doi.org/10.1016/j.najef.2017.09.006 https://doi.org/10.1016/j.najef.2017.09.... )
3	Fee	Effective monthly administration fee charged by the fund	-	Grinblatt and Titman (1989Grinblatt, M., & Titman, S. (1989). Mutual fund performance : An analysis of quarterly portfolio holdings. The Journal of Business, 62(3), 393-416.), Gil-Bazo and Ruiz-Verdú (2009Gil-Bazo, J., & Ruiz-Verdú, P. (2009). The relation between price and performance in the mutual fund industry. Journal of Finance, 64(5), 2153-2183. https://doi.org/10.1111/j.1540-6261.2009.01497.x https://doi.org/10.1111/j.1540-6261.2009... ), Vidal et al. (2015Vidal, M., Vidal-García, J., Lean, H. H., & Uddin, G. S. (2015). The relation between fees and return predictability in the mutual fund industry. Economic Modelling, 47(C) 260-270. https://doi.org/10.1016/j.econmod.2015.02.036 https://doi.org/10.1016/j.econmod.2015.0... )
4	NE	Control variable represented by the natural logarithm of the fund’s monthly net equity	+	Chen et al. (2004Chen, J., Hong, H., Huang, M., & Kubik, J. D. (2004). Does fund size erode mutual fund performance? The role of liquidity and organization. American Economic Review, 94(5), 1276-1302. https://doi.org/10.1257/0002828043052277 https://doi.org/10.1257/0002828043052277... ), Gottesman and Morey (2006Gottesman, A. A., & Morey, M. R. (2006). Manager education and mutual fund performance. Journal of Empirical Finance, 13(2), 145-182. https://doi.org/10.1016/j.jempfin.2005.10.001 https://doi.org/10.1016/j.jempfin.2005.1... ), Milani and Ceretta (2013Milani, B., & Ceretta, P. S. (2013). Efeito tamanho nos fundos de investimento brasileiros. Revista de Administração da UFSM, 6(1), 119-138. https://doi.org/10.5902/198346593607 https://doi.org/10.5902/198346593607... )

	Obs. (n)	Minimum	Maximum	1^st quartile	3^rd quartile	Mean	Standard deviation	Asymmetry	Kurtosis	Jarque- Bera
FFC4_Alpha	4,250	-0.016	0.024	0.000	0.007	0.004	0.005	-0.428	0.939	0.000
CAPM_Alpha	4,250	-0.022	0.026	0.000	0.008	0.003	0.006	-0.711	1.614	0.000
Sharpe Ratio	4,250	-0.005	0.573	0.000	0.083	0.053	0.088	2.065	4.403	0.000
Exc. Ret.	4,250	-0.219	0.193	-0.028	0.039	0.005	0.056	-0.016	1.348	0.000
RM-RF	206	-0.260	0.158	-0.044	0.049	0.000	0.065	-0.244	0.695	0.000
SMB	206	-0.110	0.191	-0.023	0.029	0.003	0.045	0.601	1.417	0.000
HML	206	-0.195	0.163	-0.043	0.015	-0.014	0.053	-0.086	0.880	0.024
MOM	206	-0.214	0.130	-0.024	0.042	0.008	0.054	-0.531	1.168	0.000

Variables	Obs. (n)	Unit	Min.	Max.	1^st quartile	3^rd quartile	Mean	Standard deviation	Asymmetry	Kurtosis
Churn rate	4,250		0.000	2.000	0.070	0.290	0.210	0.210	2.620	11.790
Turnover	4,250		0.000	0.870	0.040	0.140	0.100	0.080	1.760	5.960
NE	4,250	Log	14.000	22.100	16.600	19.270	17.980	1.730	0.150	-0.720
Fee	4,250	Monthly %	0.000	0.006	0.000	0.002	0.001	0.001	1.200	1.720
FundAge	4,250	Years	5.000	32.000	6.000	10.000	9.300	4.630	2.050	4.740

Panel A
Gross performance
Fixed effects	FFC4		CAPM		SR
Churn rate	-0.00019		-0.00041	.	-0.01243	**
NE	0.00176	***	0.00244	***	0.02324	***
Fee	-0.86494	*	0.24401		-11.68116
Fund’s age	-0.00090	***	-0.00084	***	-0.00966	***
R²	0.27261		0.28103		0.11280
Adjusted R²	0.24873		0.25743		0.08368
F-statistic	376.74800	***	392.93300	***	127.80800	***
Breusch-Godfrey	342.25000	***	414.68000	***	505.54000	***
Hausman test	89.74200	***	49.71300	***	37.69500	***
Panel B
Gross performance
Fixed effects	FFC4_Alpha		CAPM_Alpha		SR
Turnover	0.00103	.	0.00004		-0.02270	.
NE	0.00176	***	0.00244	***	0.02331	***
Fee	-0.93353	*	0.11481		-13.62544	.
Fund’s age	-0.00087	***	-0.00081	***	-0.00930	***
R²	0.26705		0.27565		0.11048
Adjusted R²	0.24313		0.25201		0.08145
F-statistic	368.44800	***	384.82200	***	125.60100	***
Breusch-Godfrey	342.25000	***	414.68000	***	512.03000	***
Hausman test	79.77400	***	15.27000	**	40.02300	***
Panel C
Net performance
Fixed effects	FFC4		CAPM		SR
Churn rate	-0.00018		-0.00042	.	-0.01201	**
NE	0.00177	***	0.00243	***	0.01627	***
Fee	-1.05217	**	0.03640		-10.48056
Fund’s age	-0.00092	***	-0.00085	***	-0.00946	***
R²	0.28039		0.28419		0.10097
Adjusted R²	0.25676		0.26070		0.07145
F-statistic	391.67800	***	399.11000	***	112.89500	***
Breusch-Godfrey	324.75000	***	403.90000	***	499.05000	***
Hausman test	73.22900	***	36.13300	***	45.63000	***
Panel D
Net performance
Fixed effects	FFC4_Alpha		CAPM_Alpha		SR
Turnover	0.00100		-0.00002		-0.02129	.
NE	0.00176	***	0.00243	***	0.01638	***
Fee	-1.11852	**	-0.09214		-12.37551	.
Fund’s age	-0.00089	***	-0.00082	***	-0.00912	***
R²	0.27499		0.27893		0.09860
Adjusted R²	0.25133		0.25540		0.06918
F-statistic	383.56500	***	391.17400	***	110.61000	***
Breusch-Godfrey	337.66000	***	413.74000	***	502.61000	***
Hausman test	40.86800	***	140.86000	***	45.77300	***

Panel A
Gross performance
Churn rate	FFC4_Alpha		CAPM_Alpha		SR
Intercept	-0.02524	***	-0.03298	***	-0.37302	***
Churn rate	0.00368	*	0.00586	***	0.00508
Fee	1.31694	***	1.45872	***	12.48466	***
NE	0.00162	***	0.00198	***	0.02418	***
Fund’s age	-0.00028	***	-0.00024	***	-0.00260	***
R²	0.26750		0.27080		0.20370
Adjusted R²	0.26670		0.27010		0.20290
Weak instrument	131.73900	***	131.73900	***	131.73900	***
Wu-Hausman test	5.04600	*	9.10700	**	0.30800
Panel B
Gross performance
Turnover	FFC4_Alpha		CAPM_Alpha		SR
Intercept	-0.02545	***	-0.03339	***	-0.37709	***
Turnover	0.01054	***	0.01778	***	0.09642	*
Fee	1.34330	***	1.49675	***	12.29059	***
NE	0.00161	***	0.00197	***	0.02380	***
Fund’s age	-0.00028	***	-0.00023	***	-0.00234	***
R²	0.26960		0.26890		0.19910
Adjusted R²	0.26890		0.26820		0.19830
Weak instrument	270.96000	***	270.96000	***	270.96000	***
Wu-Hausman test	6.49700	*	17.13000	***	3.39100	.
Panel C
Net performance
Churn rate	FFC4_Alpha		CAPM_Alpha		SR
Intercept	-0.02540	***	-0.03306	***	-0.30066	***
Churn rate	0.00374	**	0.00589	***	0.01882
Fee	0.34512	***	0.47926	***	4.79372	***
NE	0.00162	***	0.00198	***	0.01966	***
Fund’s age	-0.00028	***	-0.00024	***	-0.00206	***
R²	0.30820		0.30000		0.18350
Adjusted R²	0.30750		0.29930		0.18260
Weak instrument	131.73900	***	131.73900	***	131.73900	***
Wu-Hausman test	5.13600	*	5.13600	**	1.24500
Panel D
Net performance
Turnover	FFC4_Alpha		CAPM_Alpha		SR
Intercept	-0.02562	***	-0.03347	***	-0.30490	***
Turnover	0.01067	***	0.01779	***	0.12316	***
Fee	0.37262	***	0.51783	***	4.76062	***
NE	0.00162	***	0.00197	***	0.01930	***
Fund’s age	-0.00028	***	-0.00023	***	-0.00181	***
R²	0.31030		0.29830		0.17830
Adjusted R²	0.30960		0.29760		0.17740
Weak instrument	270.96000	***	270.96000	***	270.96000	***
Wu-Hausman test	6.73300	**	17.36000	***	5.84700	*

Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade, Departamento de Contabilidade e Atuária Av. Prof. Luciano Gualberto, 908 - prédio 3 - sala 118, 05508 - 010 São Paulo - SP - Brasil, Tel.: (55 11) 2648-6320, Tel.: (55 11) 2648-6321, Fax: (55 11) 3813-0120 - São Paulo - SP - Brazil
E-mail: recont@usp.br

Acompanhe os números deste periódico no seu leitor de RSS

[1] Email:
sabrinaespinele@ufmg.br

Brasil

Brasil

Portfolio turnover and performance of equity investment funds in Brazil* * The authors are grateful to the Fundação de Amparo à Pesquisa do Estado de Minas Gerais (Research Support Foundation of the State of Minas Gerais - Fapemig) for its financial support in carrying out this research.

ABSTRACT

Portfolio turnover and performance of equity investment funds in Brazil^* * The authors are grateful to the Fundação de Amparo à Pesquisa do Estado de Minas Gerais (Research Support Foundation of the State of Minas Gerais - Fapemig) for its financial support in carrying out this research.