Testing Whether Equity Fund Managers Can Time Market Styles

Summary

This study examines whether managers of equity-focused and mixed equity funds can anticipate shifts between market styles defined by company size, and whether any apparent skill persists. It identifies funds that ranked near the top around past style transitions, then checks their rankings at later transitions. The study reports that among ten managers with strong past results, only one manager’s three funds stayed in the top 40% across the transitions examined, which it interprets as little evidence of repeatable style-timing ability.

The analysis also compares funds’ rankings across periods grouped by market style. Rankings tend to be positively related between periods with the same style and mostly negatively related across different styles, suggesting managers often maintain a consistent style. An examination of disclosed major holdings for three strong performers attributes their results to stock selection rather than successful style timing. The findings are limited to the study’s chosen fund categories, size-based style divisions, transition dates, and ranking method; the summary provides no details on statistical significance or transaction costs.

Key ideas

• The study tests style timing by comparing fund rankings around successive market-style transitions.
• Only one of ten previously strong managers had three funds remain in the top 40% across the examined transitions.
• Fund rankings are generally more positively related across periods with the same style than across periods with different styles.
• The authors interpret this pattern as evidence that managers tend to maintain a style.
• For three funds examined, strong transition-period performance was attributed to stock selection rather than style timing.

Tags

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