Performance evaluation of equity unit trusts in South Africa

Abstract

Purpose The purpose of this paper is to evaluate the performance of 191 equity unit trusts in an emerging market, South Africa over the period from February 2006 to January 2016, which captures different market conditions (pre-global financial crisis, crisis and recovery periods). Besides testing for managerial ability, both cross-sectional regression and the non-parametric rank correlation test are used to test whether the performance generated by unit trusts does persist. Design/methodology/approach To evaluate the managerial ability of portfolio managers, two widely used methods, the Treynor-Mazuy (1966) model and Henriksson-Merton (1981) model, are employed. Both models test whether portfolio managers have stock selection and market timing ability. The cross-sectional regression and the rank correlation test are implemented which account for both parametric and non-parametric approaches of persistence testing, respectively. Findings Weak evidence of stock selection as well as market timing ability was found. Moreover, most of the unit trusts are reported to have insignificant coefficients. When testing for performance persistence using returns, the Sharpe ratio and the Sortino ratio as performance metrics, the overall results also revealed weak evidence of persistence that is equally spread across winning and losing funds. Originality/value While research on unit trusts’ performance has been conducted in emerging economies, little has been done in testing for managerial ability in general and in South Africa in particular. Moreover, the research tends to focus more on one class – Equity General. This paper extends the performance literature by testing whether portfolio managers in the South African equity unit trusts industry have stock selection and market timing ability.

Selection ability and market timing skills of mutual fund and unit trust managers in a developing economy: evidence from Ghana

“…They find significant stock selection ability but no market timing skills over the period. The trade-off between selection ability and market timing skills is also evidenced by Thobejane et al. (2017).…”

“…We do not analyze only equity funds but balanced and fixed-income funds as well. Thobejane, Simo-Kengne, and Muteba Mwamba (2017) examine equity unit trust performance in South Africa. The current study does not only analyze the selection and market timing skills of equity unit trust funds but also balanced and fixed-income unit trusts.…”

Trusts in Business Research: A Concise Systematic Literature Review

“…disclosure standards, regulation of investment/unit trust industry, and government support) impacting financial results. To investigate this, authors conduct (generally) quantitative research considering the stock markets of different countries with various extensions and maturity: the UK (Butterworth & Holmes, 2000;Clare & Moschetti, 2002;Fraser & Power, 1992;Guy, 1978;Levis, 1987;Newman, 1985), South Africa (Arendse et al, 2018;Gilmour & Smit, 2001;Thobejane et al, 2017); Taiwan (Yang & Wu, 2011;Chan & Chen, 2012;Chiao & Lin, 2004;Chiao et al, 2006;Lai et al, 2011;Lin et al, 2016;Yang, 2016), Korea (Ho, 2006;Kho et al, 2008;Kim & Yi, 2015) and Zimbabwe (Tsaurai, 2012). Others make international comparative analyses of the performances and critical success factors of unit trusts among different countries, such as the UK, Malaysia, Singapore, and South Africa (Tsaurai, 2015).…”

Solvency and performance persistence of defined benefit private and public pension plans

“…, 2021; Chekenya and Sikomwe, 2020), unit trust (e.g. Thobejane et al. , 2017), exchange trading (e.g.…”

“…Apau et al, 2021;Chekenya and Sikomwe, 2020), unit trust (e.g. Thobejane et al, 2017), exchange trading (e.g. Kunjal et al, 2021) and stock markets (e.g.…”