Attributing Mutual Fund Performance and Market Timing from Holdings
Summary
The document reviews a holdings-based framework for attributing Spanish domestic equity mutual fund performance to four sources: momentum-related trading, security selection, active market timing, and passive timing effects caused by changing security betas. It contrasts this approach with return-based timing regressions, which can be affected by changing risk exposures, and describes how portfolio weight changes relative to a passive hold assumption help isolate managers’ active decisions. The study combines fund holdings and return data and checks robustness with alternative asset-pricing models and sample periods.
Across the analyzed sample, security selection was the largest positive contributor on average, while momentum-related trading contributed negatively. Average market-timing contributions were small and generally close to zero, although timing differed between the best and worst funds, especially during crisis periods. Momentum and selection components showed positive persistence, while overall fund performance did not persist. The evidence is specific to Spanish funds and the study period; holdings-based attribution also depends on data coverage, model choices, and the assumptions used to separate active decisions from passive weight changes.
Key ideas
- The framework decomposes fund performance into momentum trading, stock selection, active timing, and passive timing effects.
- It uses portfolio holdings and weight changes to distinguish managers’ decisions from passive changes in portfolio exposures.
- Stock selection was the strongest positive average contributor, while momentum-related trading was negative.
- Average timing contributions were close to zero, though timing differentiated the strongest and weakest funds during crises.
- Selection and momentum components persisted, but overall fund performance did not show persistence.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.