Can Any Mutual Fund Capture the Value Premium? Market-based value portfolios and passive value style indexes simply do not outperform growth portfolios and growth indexes over time. Therefore, we ask whether any managed fund can capture the elusive value premium that undoubtedly appears in the academic data

March 1, 2013 Leave a comment

Can Any Mutual Fund Capture the Value Premium?

Kenneth E. Scislaw 

Drexel University Lebow College of Business

David G. McMillan 

University of Stirling
September 19, 2012

Abstract: 
If the value premium exists as a function of risk, then value investment portfolios should systematically outperform growth portfolios over time. A long lineage of research is very clear on the matter. Unfortunately, recent tests of managed portfolios and market indexes have failed to support the risk thesis. Market-based value portfolios and passive value style indexes simply do not outperform growth portfolios and growth indexes over time. Therefore, we ask whether any managed fund can capture the elusive value premium that undoubtedly appears in the academic data. Moreover, we do so by examining the returns of one particular fund that was specifically designed to capture it. In the end, we find the fund has indeed been successful. However, in decomposing the returns of this particular fund, in order to illuminate how others might replicate its success, we find substantial evidence that the value return premium is in fact partially a growth stock discount story. This finding goes a long way in explaining why managed growth fund returns have equalled managed value fund returns over time, despite predictions to the contrary from a long lineage of academic research.

Filed under Research

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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