The performance evaluation for fund of funds by comparing asset allocation of mean–variance model or genetic algorithms to that of fund managers

Abstract

This study investigates the ability of security selection by comparing the performance of the portfolios of fund of funds (FOF) constructed by the Markowitz Mean–Variance (MV) model or Genetic Algorithms (GA) to that of fund managers (FMs). All target mutual funds held by FOF in the US market from 1 January 2000 to 31 December 2003 are chosen. The results reveal several things. First of all, only GA and the MV both beat the market index and the performance of GA is much better than that of FMs and the MV. Secondly, in terms of the ability to select funds, both the MV and GA outperform the operation of FMs. Finally, GA dominate over the MV in regards to measuring performance and performance persistence.

Notes

¹ S&P 500 WorkStation is a comprehensive suite of application which enables users to get the relative price information and reports of mutual fund in main security market.

² AIM™ Asset Investment Management is provided by Standard & Poor's Fund Services Inc. in 2000.

³ In Table 3, fund size is the aggregate net asset value of a mutual fund as of 31 December 2003 or the fund's most recent reporting date before 31 December 2003.

⁴ Turnover is the percentage of a mutual fund portfolio's holdings that have changed over the past year.

⁵ As-01, As-02, etc. is the symbol of sample FOF (fund of funds). And the detailed list of target holding mutual fund is represented in Table 1.