A Slack-Based DEA Index for Comparing Mutual Fund Managers

Summary

The document summarizes a slack-based manager efficiency index (SMEI) for evaluating mutual fund managers as a whole rather than judging each fund in isolation. The data envelopment analysis framework treats risk, portfolio turnover, and a combined education-and-experience measure as inputs, with asset-weighted returns and assets under management as outputs. A manager’s score compares their input-output profile with an efficiency frontier formed by peers. A local version narrows the comparison group to managers with similar characteristics, such as investment specialization, to make benchmarks more relevant.

The reported application uses Spanish euro-equity funds and individual managers over 2009–2016. It describes persistence in low efficiency scores and finds that the local approach can identify managers who appear inefficient against the full sample but efficient among similar peers. The paper also notes a weakness: local scoring can become infeasible when a cluster has too few globally efficient managers. The evidence is historical and market-specific, and the index depends on chosen inputs, outputs, peer groups, and model assumptions; it is not a direct forecast of future fund returns.

Key ideas

• SMEI applies data envelopment analysis to managers’ combined fund activity rather than to a single fund.
• The model uses risk, turnover, and education and experience as inputs, and returns and assets under management as outputs.
• Local SMEI compares managers with similar profiles to produce more relevant peer benchmarks.
• The Spanish fund sample showed persistence in low efficiency, but small peer clusters could make local scoring infeasible.
• The index is a historical relative-efficiency measure whose results depend on model design and sample composition.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.