Performance Evaluation Based on Appraisal Ratio

The estimated values for the Appraisal Ratio (AR), with OSEFX as a market index, are presented in table 8-6 in. When calculating the AR, it is essential to use each fund’s associated reference index as the market index to obtain a correct result. Funds with the highest AR values are ranked as the best. A positive (negative) AR value indicates that the fund has done better (worse) than its market index.

Fund AR Rank

Carnegie Aksje Norge 0,1322 2

Danske Fund Norge I -0,0904 21

Danske Fund Norge II -0,0480 13

Delphi Norge 0,0668 7

Delphi Vekst 0,0700 6

Handelsbanken Norge -0,0633 17

Fund AR Rank

ODIN Norge 0,1055 5

Orkla Finans Investment Fund -0,0484 14

PLUSS Aksje -0,0679 18

PLUSS Markedsverdi 0,0313 10

Table 8-6 Estimated Appraisal Ratio for funds with OSEFX as market index

The ranking based on AR differ from the other measures. As shown in table X, 13 of the 23 funds have a negative Appraisal Ratio The best funds according to the AR are Alfred Berg Norge +, Carnegie Aksje Norge and Alfred Berg GAMBAK, respectively. The table also shows that Danske Fund Norge I, Nordea Vekst and Avanse Norge (II) are the funds with poorest performance. The two latter funds were also the worst using the Treynor ratio and the adjusted Jensen’s Alpha.

There are 9 funds which use OSEBX as market index, and they are ranked in table 8-7. As shown in the table, 5 funds have a negative AR. The best fund is Storebrand Verdi, and Postbanken Norge is the fund with the poorest performance. Storebrand Verdi has also performed very well according to the other previous measures.

Fund AR Rank

DnB NOR Norge (I) -0,0595 7

DnB NOR Norge (III) 0,0652 3

DnB NOR Norge Selektiv (I) 0,1065 2

DnB NOR Norge Selektiv (III) -0,0482 5

Storebrand Aksje Innland 0,0480 4

Storebrand Vekst -0,0498 6

Storebrand Verdi 0,1952 1

NB-Aksjefond -0,0918 8

Postbanken Norge -0,1466 9

Table 8-7 Estimated Appraisal ratio for funds with OSEBX as market index

Table 8-8 and 8-9 in next page shows the funds using OSESX and OBX as their market index. All the estimated Appraisal values are negative.

Fund AR Rank

Danske Fund Norge Vekst -0,0767 1

Nordea SMB -0,1602 2

Table 8-8 Estimated Appraisal ratio for funds with OSESX as market index

Fund AR Rank

Pluss Index -0,03269 1

Carnegie Norge Indeks -0,15408 2

Table 8-9 Estimated Appraisal ratios for funds with OBX as market index

In table8-10, the ranking of the funds is presented, by using OSEFX as the market index for all of the funds. In addition to present Appraisal Ratio for funds with each their respective market index in separate tables, we have collected all the funds in one table whether they use OSEFX, OSEBX, OBX or OSESX. In the left side of 8-10, AR ratio is calculated by using each fund’s respective market index and in the right side by using OSEFX as the market index for all of the funds. We have presented both to show the importance of using correct market index when calculating AR ratio.

Fund AR Rank AR with

Storebrand Aksje Innland 0,0480 13 0,0602 12

Storebrand Norge -0,0588 23 -0,0588 27

Orkla Finans Investment Fund -0,0484 20 -0,0484 24

PLUSS Aksje -0,0679 26 -0,0679 29

PLUSS Index -0,0327 17 0,0761 8

PLUSS Markedsverdi 0,0313 14 0,0313 17

Postbanken Norge -0,1466 33 -0,1010 34

Table 8-10 Estimated Appraisal ratio for funds with their own market index and AR ratio for all funds with OSEFX as market index

As we can see, those two rank differently but the three best funds are the same. Funds with best performance are as following: Storebrand Verdi, Alfred Berg Norge+ and Carnegie

when we use each funds respective market index, but this fund comes to a sixteenths place according to AR in the right side of table.

8.4 Performance Persistence

In this section we present results from the two performance persistence tests. Our findings are summarized in Table 8-11.

Persistence of unadjusted rate of return Persistence of Jensens’ alpha

8.4.1 Persistence of Rate of Return

With our small sampling material we cannot reject the null hypothesis for any year

any performance persistence among Norwegian equity funds. Nevertheless, we can observe that the percentage of repeated Winners vary greatly from year to year, and as many as 78% of the 1999 Winners turned into Losers in year 2000.

This reversal trend is observed in 4 out of 9 years. The general trend during the period seems to be that if a fund outperforms 50 % of it’s peers in period t-1, it is more likely that in period t the fund will find itself in the lower half when it comes to performance. This is because, on average, only 48,15% of the Winners tend to stay Winners also the following year. However, these observations have no statistical significance.

8.4.2 Persistence of Portfolio’s Alpha

This test shows similar results as persistence of rate of return test. As we recall CPR ratio equal to 1 means that 50 % of last periods Winners stay Winners in the preceding period, while CPR<1 indicates that more than 50 % of the last years Winners have turned into the current years Losers.

None of the years shows statistically significant positive or negative performance persistence.

Both relative and absolute tests show that there is no performance persistence in Norwegian equity funds’ performance during the period 1998-2007. As several studies indicate that the results vary depending on the period studied, we cannot generalize these conclusions to any other time period.

It is worth noting that our results are exposed to bias in our data set, since we have looked only at funds that have been in existence during the whole observation period, leaving out funds that were started after 1998 and those that ceased to exist before March 2008.

However, our findings are consistent with studies that search for performance persistence in mutual fond industry in Italy (Casarin et al (2002)), Danmark (Christensen (2005)) and Britain (Keswani, Stolin (2005)).