Risk-Adjusted Performance in Active Fund Management : A Performance Evaluation and Attribution Analysis at Länsförsäkringar Fondförvaltning AB

Sammanfattning

This thesis investigates whether active fund management at Länsförsäkringar Fondförvaltning AB generates risk-adjusted outperformance relative to the financial market, specifically regarding the funds Länförsäkringar Bekväm Fond Balans (BFBAL) and Länsförsäkringar Multistrategi (MULTI). While active management aims to outperform the market through strategic decisions, analysis, and managerial skill, previous research presents mixed evidence, and the question of whether consistent excess returns can be achieved after adjusting for risk is still unanswered. This makes the problem both practically relevant and academically challenging, particularly within the context of real-world portfolio management. The study addresses the question of whether observed returns can be attributed to managerial skill or if they only reflect systematic risk. The difficulty lies in isolating true alpha from market-driven returns, especially under assumptions such as those derived from the Capital Asset Pricing Model (CAPM) and the Efficient Market Hypothesis (EMH). To address this problem, selected financial instruments, or factors, are used to capture the funds' risk profile in order to explain their returns. Regression analysis is applied to evaluate the presence of over- or underperformance, in terms of returns not explained by the instruments. In addition, performance attribution techniques are used to identify the returns' underlying drivers, including asset allocation effects and market timing effects. The results provide insights into whether the active management at Länsförsäkringar Fondförvaltning AB contributes to statistically significant abnormal returns and which specific factors drive performance. The findings are beneficial for both fund managers and investors, as they speak on the value of active management strategies. Furthermore, the study contributes to the broader discussion on market efficiency and guides the conduct of risk-adjusted performance analyses. Throughout, the report employs an underlying return-based factor model in which fund returns are modeled as linear exposures to systematic risk factors, with the intercept (alpha) representing risk-adjusted abnormal return. The factor model is applied for both performance evaluation and attribution, where the factors consist of iShares MSCI ACWI ETF, OMX Stockholm All-Share Index, iShares International Treasury Bond ETF, Shares iBoxx \$ High Yield Corporate Bond ETF, and iShares J.P. Morgan USD Emerging Markets Bond ETF. The findings show indications of risk-adjusted abnormal return for BFBAL over the whole sample period, and a persistent positive alpha throughout. However, there are no indications of attribution or market timing effects contributing to these observations. For MULTI, there are no robust indications of risk-adjusted outperformance, allocation effects, or timing effects throughout the sample. The report highlights the model-dependence in acquired results, and for future research, suggests using holdings data and other financial instruments or macroeconomic variables to develop the underlying model and achieve higher explainability.