A Portfolio Based Style Analysis of Equity Mutual Funds in Pakistan

Abstract

The investment style has become a prominent concept in investment management. The researcher highlights the significance of selecting the right style benchmarks and warns that the use of unsuitable style benchmarks can lead to erroneous decisions. This study extends and applies new measures of portfolio performance of mutual funds, primarily based on the characteristics of equity stocks, including book-to-market, price-to-earnings, market capitalization, dividend yield, and momentum. The technique of style analysis, specifically portfolio-based style analysis, is applied to the open-ended equity mutual funds of Pakistan. Data were collected from the Mutual Fund Association of Pakistan for the period 2010 to 2014. The findings relate to the inclusion of the price-to-earnings factor in the model, and the net effect was tested using multivariate regression analysis. All portfolios were found to be negative and significant for the price-to-earnings factor. The study demonstrates the appropriateness of creating portfolios based on style analysis of equity mutual funds in Pakistan. Decision-makers of mutual funds should carefully account for all relevant factors to maximize returns regarding investment, financing, and valuation decisions.