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On fees and performance in the premium pension system: A study of the determinants of mutual fund fee and risk-adjusted return within the Swedish premium pension system
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Business Administration.
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Business Administration.
2017 (English)Independent thesis Advanced level (professional degree), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

Pension is a subject that soon or later affects all individuals in society. Within the premium pension system mutual fund fees are an important factor to consider since it can erode savings. This study investigates fees and performance of all mutual funds that existed in the premium pension system (PPS) between 2004 and 2016. Risk-adjusted performance and fees are adjusted to reflect the discount that is given for fees within the premium pension system to reflect actual investor experiences. The data needed to make these adjustments were obtained from the Swedish Pension Agency. The main purpose of this study is to investigate if there is a relationship between fee and risk-adjusted return within the Swedish premium pension system. Further on this study aims to explain what mutual fund characteristics can be used to predict performance and fees within the premium pension system.Theories used in this study are efficient market hypothesis, agency theory, behavioral finance, economies of scale and portfolio theory. The factors from the Carhart 4-factor model is used to construct the factor model utilized in this study to estimate risk-adjusted returns. This study adapts a quantitative research method and panel data regressions were conducted to determine how fee and risk-adjusted performance is related to various mutual fund characteristics. Hausman tests were conducted to evaluate if the fixed effects model or random effects model was the most appropriate to use. The result of the Hausman test proved that fixed effect model was the most appropriate model to use.This study will draw conclusions about whether the fee that the mutual fund companies charge can be justified given their risk-adjusted performance. The results for the sample of all mutual funds and the sample of equity funds imply that there exists a positive relationship between fee after discount and performance. Therefore, mutual funds in the premium pension system compensate for increasing fees with a higher risk-adjusted return. The sample of balanced funds differs since there is a negative relationship between risk-adjusted returns and fees. This study finds that size is a determinant of risk-adjusted performance, with larger mutual fund performing better than smaller funds. Because of this finding, it can be concluded that economies of scale do exist among the mutual funds in the premium pension system. Actively managed mutual funds charge higher mutual fund fees on average than passively managed funds. Further on, there is significant evidence that actively managed equity funds perform worse than passively managed equity funds. This suggests that investors are better off investing into cheaper equity index funds rather than expensive actively managed equity funds.

Place, publisher, year, edition, pages
2017. , 80 p.
Keyword [en]
pension, fee, size, performance, active management
National Category
Business Administration
Identifiers
URN: urn:nbn:se:umu:diva-138087OAI: oai:DiVA.org:umu-138087DiVA: diva2:1130251
External cooperation
Anonym
Educational program
International Business Program
Supervisors
Examiners
Available from: 2017-08-10 Created: 2017-08-08 Last updated: 2017-08-10Bibliographically approved

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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf