Mutual Fund Performance Attribution Using Portfolio Holdings: Case of Thai Equity Mutual Fund

Abstract

Selection skill and timing skill are two fundamental abilities which have been discussed to determine fund performance. This paper extends understanding of these two skills of Thai equity mutual fund. This paper is distinguished from prior study by using different method which is the Brinson model and based on the portfolio holdings. The model is decomposed the excess return into “allocation effect” and “selection effect”. Thailand SET industry group and sector classification which composed of 28 sectors is applied in order to examine both effects in the sector level. For the mutual fund returns, Jensen Alpha and Treynor-Mazuy are subsequently employed to examine the overall ability and timing ability, respectively. For the return attribution, Treynor-Mazuy is subsequently employed to examine picking ability and timing ability. As a whole with SET TRI Index, the finding suggests that picking ability dominate timing ability for both effects. Although the results do not reveal any timing ability to both allocation effect and selection effect, timing ability has lots of negative impact especially for selection effect in terms of security timing ability. Between two effects, security picking tend to be the main skill that most funds can achieve compare to sector picking. Therefore, selection effect is a larger contribution to the excess return than allocation effect as a result of security picking. Within the same fund with SET TRI Index, only 12% of mutual fund observations exhibit positive effect to both sector picking ability and security picking ability.