Profitability of Sector Mutual Funds and ETFs During Market Development and Length of Investment Horizon

Martin Širůček, Jan Vystoupil, Petr Strejček

Abstract

This paper focuses on the profitability of investments into IT, finance, healthcare and consumer goods oriented active and passive mutual funds and ETFs and their profit/loss in different market situations (growing, stagnant and decreasing markets).The aim of the paper is to set recommendations for investors as regards which instrument (active or passive mutual fund or ETFs) brings higher return or lower loss over the time and market development and if investors can expect different results based on the sector orientation, which sector is more sensitive to bullish or bearish trends. Our results show that neither ETF nor passive mutual funds were able to beat the market, as the sector index brings better results than these investments in all situations. Within bearish trend, all sector ETFs and passive mutual funds bring the same results as sector index, only active managed mutual funds bring better results. The lowest loss during this period was achieved by active managed mutual funds focusing on healthcare. Bullish and stagnant markets bring quite the same results, but passive funds and ETF are more profitable than active mutual funds in growing markets.

Bibliographic citation

Širůček, M., Vystoupil, J. and Strejček, P. (2018). Profitability of Sector Mutual Funds and ETFs During Market Development and Length of Investment Horizon. Financial Assets and Investing, 9(2), pp. 42-60.

Keywords

ETF; active investment; passive strategy; Sharpe ratio; risk

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https://doi.org/10.5817/FAI2018-2-3

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