The impact of fund attributes on the performance of South African collective investment schemes: a panel data analysis

Abstract

With the heightened attention on collective investment schemes (CISs) as attractive investment vehicles, the performance of CISs and the factors that could potentially influence this performance has become increasingly important. As such, the extent to which fund attributes affect fund performance has been widely researched by practitioners and scholars. In contrast to the extensive research that has been conducted on fund attribute-performance relationships of funds operating in developed international markets, limited literature exists within a South African context. Accordingly, this study attempts to identify favourable fund attributes within the South African CIS environment by providing empirical evidence on the impact that fund attributes, namely size, family size, age, and expense ratios, have on the performance of South African CISs by employing panel data methodologies. Specifically, a sample of 175 South African–Equity–General classified funds as per the Association for Savings and Investment South Africa Classification Standard are analysed over the period January 2000 to September 2021. Pooled ordinary least squares, fixed effects, and random effects models are estimated when fund performance is measured as total return, the Treynor ratio, Sharpe ratio, information ratio, and Jensen’s alpha. The results indicate that fund size and age are significantly negatively related to performance. Contrarily, fund family size impacts performance in a significant positive manner whereas fund expense ratios have an insignificant influence on performance. Hence, the most favourable South African– Equity–General CIS based on its fund attributes is a younger and smaller fund belonging to a larger fund family. The observed fund attribute-performance relationships of South African CISs conform with that of international funds identified in other studies with the exception of the fund expense ratio attribute in which a significant negative relationship has primarily been reported. The findings of this study provide valuable insights to the South African CIS repository of academic knowledge. Furthermore, the results may assist investors of CISs to identify funds with favourable attributes in an attempt to enhance their returns. CIS institutions and managers of funds that possess favourable attributes can also use the results as part of their marketing campaigns to promote their favourable fund characteristics.