Active and passive fund management. A look at fund management performance against the Ghana stock exchange (GSE) composite index

Table of Contents

CHAPTER ONE

1.1 Introduction to the Ghanaian Economy, Fund Management, and Stock Exchange

1.1.1 The Concept of “Zero Sum Game” and Mutual Funds

1.2 Research Aim

1.3 Research Questions and Key Hypothesis

1.4 Dissertation Outline

CHAPTER TWO

2.1 Literature Review

2.1.1 Background to Index Funds

2.1.2 The Active/Passive Debate

2.1.3 Picking Fund Manager with Persistent Performance and the Predictability of Index Funds

2.1.4 Fund Managers Performance: Market Timing Skills or Luck?

2.1.5 The Continuous Popularity of Active Fund Management

2.1.6 Impact of Leadership, Market Segment and Market Cyclicality on Performance

2.1.7 Diversification and Index Funds

2.1.8 Active Share and Closet Index

2.1.9 The Ghana Stock Exchange

2.2 Summary of Literature Review

CHAPTER THREE

3.1 Research Methodology

3.2 Mutual Funds and Unit Trusts Industry in Ghana and Research Sample Size

3.2.1 Summary of Collective Investment Schemes Year on Year from 2006

3.3 Specific Data Used and Their Sources

3.4 Conduct of Analysis

CHAPTER FOUR

4.1 Data Analysis, Findings and Discussion of Findings

4.1.1 Performance of Funds with Data from 2006

4.1.2 Performance of funds with continuous 2 year data within 2006 and 2013

4.1.3 Fund Manager Efficiency

4.1.4 Summary of Returns Based on Absolute Averages

4.1.5 Performance Analysis Based on Jensen’s Alpha and Sharpe Index

4.1.6 Alpha and Sharpe Ratios before Cost

4.1.7 Alpha and Sharpe Ratio after Cost

4.1.8 Analysis of Funds with Continuous Data from 2006

4.1.9 Evidence of persistent performance

4.1.10 Portfolio Allocation and Performance

4.2 Research Hypothesis

CHAPTER FIVE

5.1 Summary of Findings and Conclusions

5.2 Summary of Key Findings and Contribution of Research Work

5.3 Further Studies and Study Limitations

Research Goals & Themes

The core objective of this study is to evaluate the performance of Ghanaian investment fund managers between 2006 and 2013 by comparing their returns against the Ghana Stock Exchange (GSE) composite index, thereby determining whether active fund management or passive index replication is more effective in the Ghanaian market context.

• Performance assessment of active fund management in Ghana.
• Comparison of mutual fund returns against the GSE composite index.
• Analysis of risk-adjusted performance using Sharpe ratios and Jensen’s Alpha.
• Investigation into market timing skills and stock selection abilities of local fund managers.
• Impact of fund costs on investor returns.

Excerpt from the Book

Summary of Chapters

CHAPTER ONE: This chapter introduces the Ghanaian economic and financial landscape, establishing the necessity for fund management and outlining the research aims, questions, and hypotheses.

CHAPTER TWO: Provides a comprehensive literature review covering the global active vs. passive investment debate, the history of index funds, performance metrics, and the specific characteristics of the Ghana Stock Exchange.

CHAPTER THREE: Details the research methodology, data collection sources regarding collective investment schemes in Ghana, and the statistical tools used, such as CAPM, Sharpe ratio, and Jensen’s Alpha.

CHAPTER FOUR: Presents the primary data analysis and findings, evaluating the performance of funds against the GSE composite index, examining manager efficiency, and testing the research hypotheses.

CHAPTER FIVE: Summarizes the key research findings and conclusions, offering insights into the performance of Ghanaian fund managers and identifying limitations and areas for future study.

Keywords

MUTUAL FUNDS, ACTIVE MANAGEMENT, INDEX FUNDS, GHANA, PERFORMANCE-MEASUREMENT, GSE COMPOSITE INDEX, JENSEN’S ALPHA, SHARPE RATIO, CAPITAL ASSET PRICING MODEL, MARKET TIMING, STOCK SELECTION, PERSISTENT PERFORMANCE, FRONTIER MARKET, COLLECTIVE INVESTMENT SCHEMES, ASSET ALLOCATION

Frequently Asked Questions

What is the primary focus of this research?

This research evaluates the performance of investment fund managers in Ghana between 2006 and 2013 to determine whether they provide superior returns compared to the Ghana Stock Exchange (GSE) composite index.

What are the main thematic areas covered?

The study covers the active versus passive management debate, performance measurement techniques (Sharpe ratio and Jensen's Alpha), market timing skills, the impact of costs, and portfolio diversification strategies.

What is the core research question?

The research asks if there is a significant difference between buying stocks that replicate the GSE composite index and investing through active fund managers, specifically focusing on whether fund managers add value through their investment decisions.

Which methodology is employed in the study?

The study uses quantitative analysis, employing the Capital Asset Pricing Model (CAPM) to calculate Jensen’s Alpha and utilizing Sharpe ratios to assess risk-adjusted performance across collected data from collective schemes.

What topics are discussed in the main body?

The main body explores the literature on index funds, analyzes the data collected from Ghanaian mutual funds and unit trusts, compares these returns against the market benchmark, and discusses the implications of these findings for investors and managers.

How can the key findings be characterized?

The findings show that, on average, Ghanaian fund managers underperform the market benchmark, particularly after adjusting for costs, and that the sector lacks effective market timing and stock selection skills.

Why are there virtually no index funds on the Ghanaian market?

The research notes that while indexing is popular globally, it is largely unknown in Ghana, where the financial environment is still developing and fund managers primarily focus on speculative strategies and money market instruments.

Does the research conclude that active management is completely inefficient in Ghana?

The study does not claim absolute inefficiency but suggests that given the current data and market constraints, the aggregate performance of active managers fails to consistently beat the market, thereby questioning the value added by these managers after expenses.