City Research Online

Mutual fund performance: Measurement and evidence

Cuthbertson, K., Nitzsche, D. & O'Sullivan, N. (2010). Mutual fund performance: Measurement and evidence. Financial Markets, Institutions and Instruments, 19(2), pp. 95-187. doi: 10.1111/j.1468-0416.2010.00156.x


The paper provides a critical review of empirical findings on the performance of mutual funds, mainly for the US and UK. Ex-post, there are around 0-5% of top performing UK and US equity mutual funds with truly positive-alpha performance (after fees) and around 20% of funds that have truly poor alpha performance, with about 75% of active funds which are effectively zero-alpha funds. Key drivers of relative performance are, load fees, expenses and turnover. There is little evidence of successful market timing. Evidence suggests past winner funds persist, when rebalancing is frequent (i.e., less than one year) and when using sophisticated sorting rules (e.g., Bayesian approaches) - but transactions costs (load and advisory fees) imply that economic gains to investors from winner funds may be marginal. The US evidence clearly supports the view that past loser funds remain losers. Broadly speaking results for bond mutual funds are similar to those for equity funds. Sensible advice for most investors would be to hold low cost index funds and avoid holding past 'active' loser funds. Only sophisticated investors should pursue an active ex-ante investment strategy of trying to pick winners - and then with much caution. © 2010 New York University Salomon Center and Wiley Periodicals, Inc.

Publication Type: Article
Additional Information: This is the pre-peer reviewed version of the following article: Cuthbertson, K., Nitzsche, D. and O'Sullivan, N. (2010), Mutual Fund Performance: Measurement and Evidence1. Financial Markets, Institutions & Instruments, 19: 95–187., which has been published in final form at This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Publisher Keywords: Mutual fund performance; persistence; smart money
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
SWORD Depositor:
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