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Benchmark-adjusted performance of US equity mutual funds and the issue of prospectus benchmarks

Mateus, I. B., Mateus, C. & Todorovic, N. ORCID: 0000-0003-4875-623X (2019). Benchmark-adjusted performance of US equity mutual funds and the issue of prospectus benchmarks. Journal of Asset Management, doi: 10.1057/s41260-018-0101-z


This study examines the impact of mismatch between prospectus benchmark and fund objectives on benchmark-adjusted fund performance and ranking in a sample of 1281 US equity mutual funds. All funds in our sample report S&P500 index as a prospectus benchmark, yet 2/3 of those are placed in the Morningstar category with risk and objectives different to those of the S&P500 index. We identify more appropriate ‘category benchmarks’ for those mismatched funds and obtain their benchmark-adjusted alphas using recent Angelidis et al. (J Bank Finance 37(5):1759–1776, 2013) methodology. We find that S&P500-adjusted alphas are higher than ‘category benchmark’-adjusted alphas in 61.2% of the cases. In terms of fund quartile rankings, 30% of winner funds lose that status when the prospectus benchmark is substituted with the one better matching their objectives. In the remaining performance quartiles, there is no clear advantage of using S&P 500 as a benchmark. Hence, the prospectus benchmark can mislead investors about fund’s relative performance and ranking, so any reference to performance in a fund’s prospectus should be treated with caution.

Publication Type: Article
Additional Information: This is a post-peer-review, pre-copyedit version of an article published in Journal of Asset Management. The final authenticated version is available online at:
Publisher Keywords: Prospectus benchmark selection, Mutual fund benchmark mismatch, Benchmark-adjusted alphas, Performance ranking
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
Text - Accepted Version
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