MANAGEMENT ACTIVITY, TAX PRIVILEGE, AND PERFORMANCE PERSISTENCE OF THAI EQUITY FUNDS IN 2008-2017

Abstract

This study aims to (1) categorize Thai mutual funds based on management activity using the two measures, tracking error and Active Share; (2) find the movement of management activity over a decade; and (3) find the persistence of fund performance reflected in net cash flow to funds and associated with the prior period return, category of management activity, and characteristics of tax-incentivized funds, i.e., long-term equity funds (LTFs) and retirement mutual funds (RMFs). We calculated tracking error and Active Share for 112 Thai equities funds across 20 semiannual periods between 2008 and 2017 to classify them into four types of active funds. The paired-samples t-test analyzes the average change of the two variables over 190 different time intervals. In addition, we regress current net cash flow against prior cash flow, one-factor alpha, and return in the prior period, as well as dummy variables representing characteristics of actively managed funds and tax-exempt funds, to determine the persistence of fund performance as measured by net cash flows to the fund. We find that most funds are indexers despite being marketed as active. Movements of the two measures were heterogeneous during short time intervals, but over intervals of five years or more, Active Share increased, and tracking error decreased. Positive net cash flow to funds indicated continued performance based on early performance indicators. This association was stronger among concentrated and diversified stock pickers than among factor bettors and LTFs as opposed to RMFs or those without tax privilege.