Mutual Fund Performance in the Netherlands: Luck or Skill?

Abstract

This study applies the cross-section bootstrap method of Kosowski et al. (2006) to a sample of 14 surviving actively managed Dutch open-end equity funds over the 1992-2015 period. Using this method, it is able to identify whether an individual fund’s outperformance is the product of ‘luck’ or ‘skill’. This provides an indication to investors whether active fund management is worth the costs. An advantage of the method over parametric methods is that it does not require a fund’s idiosyncratic risk to be normally distributed. The results of the study provide evidence of luck for positive outperforming funds in the sample and evidence of misfortune for most negative outperformers. The majority of funds underperforms the benchmark and only the worst funds in the sample provide weak evidence of bad skill. In addition, the worst negative funds persistently underperform the benchmark over four non-overlapping sub-periods. Considering the sample is not free of survival bias and has a small sample size, the true proportion of bad skill is probably much higher. The outcomes indicate investors rather invest in low-cost index-tracker funds than in actively managed Dutch equity funds.