A performance analysis of conventional and fundamental exchange traded funds: ETFs and their risk-return characteristics in relation to building institutional investor’s passive portfolio

An exchange traded fund (ETF) is a financial instrument that tracks some predetermined index. Since their initial establishment in 1993, ETFs have grown in importance in the field of passive investing. The main reason for the growth of the ETF industry is that ETFs combine benefits of stock investing and mutual fund investing. Although ETFs resemble mutual funds in many ways, also many differences occur. In addition, ETFs not only differ from mutual funds but also differ among each other. ETFs can be divided into two categories, i.e. market capitalisation ETFs and fundamental (or strategic) ETFs, and further into subcategories depending on their fundament basis. ETFs are a useful tool for diversification especially for a long-term investor. Although the economic importance of ETFs has risen drastically during the past 25 years, the differences and risk-return characteristics of fundamental ETFs have yet been rather unstudied area. In effect, no previous research on market capitalisation and fundamental ETFs was found during the research process. For its part, this thesis seeks to fill this research gap. The studied data consist of 50 market capitalisation ETFs and 50 fundamental ETFs. The fundaments, on which the indices that the fundamental ETFs track, were not limited nor segregated into subsections. The two types of ETFs were studied at an aggregate level as two different research groups. The dataset ranges from June 2006 to December 2014 with 103 monthly observations. The data was gathered using Bloomberg Terminal. The analysis was conducted as an econometric performance analysis. In addition to other econometric measures, the methods that were used in the performance analysis included modified Value-at-Risk, modified Sharpe ratio and Treynor ratio. The results supported the hypothesis that passive market capitalisation ETFs outperform active fundamental ETFs in terms of risk-adjusted returns, though the difference is rather small. Nevertheless, when taking into account the higher overall trading costs of the fundamental ETFs, the underperformance gap widens. According to the research results, market capitalisation ETFs are a recommendable diversification instrument for a long-term investor. In addition to better risk-adjusted returns, passive ETFs are more transparent and the bases of their underlying indices are simpler than those of fundamental ETFs. ETFs are still a young financial innovation and hence data is scarcely available. On future research, it would be valuable to research the differences in risk-adjusted returns also between the subsections of fundamental ETFs.

Viruses and their significance in agricultural and horticultural crops in Finland

Selostus: Maatalous- ja puutarhakasveissa havaitut virukset ja niiden merkitys Suomessa

Effect of type of forage offered and breed on performance of crossbred suckler heifers and their calves

Selostus: Karkearehuruokinnan vaikutus risteytyshiehojen ja niiden vasikoiden kehitykseen sisäruokinta- ja laidunkaudella

Fluorescence in situ hybridization of potato somatohaploids and their somatic hybrid donors using two Solanum brevidens specific sequences

Selostus: Perunan somaattisten hybridien ja niiden somatohaploidien fluoresenssi in situ -hybridisaatio Solanum brevidens -lajin spesifisten sekvenssien avulla

Effect of feeding level and diet type on the performance of crossbred suckler cows and their calves

Selostus: Ureoidun oljen soveltuvuus risteytysemojen talviruokintaan kahdella eri ruokintatasolla

Influence of pre partum and post partum plane of nutrition on the performance of crossbred suckler cows and their progeny

Selostus: Sisäruokintakauden energiamäärien vaikutus risteytysemolehmien tuotantoon

Lihahygienialainsäädännön omavalvontasäädökset ja käytäntö Oy Snellman Ab:n teurastamossa ja leikkaamossa, osa I Osa 1 : Owncontrol directions in meat hygiene legislation and their practical implementation in the slaughterhouse and cutting plant of Snellman Ltd, part I

Summary: Owncontrol directions in meat hygiene legislation and their practical implementation in the slaughterhouse and cutting plant of Snellman Ltd, part I

Models for vertical wood density of Scots pine, Norway spruce and birch stems, and their application to determine average wood density

Abstract

Timing and intensity of precommercial thinning and their effects on the first commercial thinning in Scots pine stands

Abstract

Statistical variation of weld profiles and their expected influence on fatigue strength

The general objective of this study was to conduct astatistical analysis on the variation of the weld profiles and their influence on the fatigue strength of the joint. Weld quality with respect to its fatigue strength is of importance which is the main concept behind this thesis. The intention of this study was to establish the influence of weld geometric parameters on the weld quality and fatigue strength. The effect of local geometrical variations of non-load carrying cruciform fillet welded joint under tensile loading wasstudied in this thesis work. Linear Elastic Fracture Mechanics was used to calculate fatigue strength of the cruciform fillet welded joints in as-welded condition and under cyclic tensile loading, for a range of weld geometries. With extreme value statistical analysis and LEFM, an attempt was made to relate the variation of the cruciform weld profiles such as weld angle and weld toe radius to respective FAT classes.