Performance evaluation of UCITS & Non-UCITS funds in Malta : a classical approach

Abstract

This dissertation seeks to analyse the mutual fund industry in Malta and empirically assess the performance of these funds. The introductory chapter gives an overview of Malta's financial sector during these past two decades, and it evolution process. It establishes the framework via which this study will empirically assess and compare the performance of UCITS and non-UCITS funds domiciled in Malta. Chapter Two aims to point out what is meant by the terms mutual funds and CIS and how these are defined under Maltese legislation, together with the main differences between UCITS and non-UCITS fund types. Subsequently, it expands on a number of studies and techniques adopted to assess the performance of funds, with particular reference to classical models as suggested by Treynor (1965). Jensen (1966) and Sharpe (1966). Chapter Three follows by stating the methodology adopted, explaining the criteria onto which selection of funds was based. In addition, other valuable data obtained in order to construct suitable benchmarks for each respective is also highlighted. This chapter also emphasises on the importance of benchmarking, in order to effectively assess funds' performance. Models used in order to account for risk in relation to returns are outlined in Chapter Four, together with the explanation of how these models are to be interpreted by the reader. The different models used are compared to each other to better understand what each technique basis its method of evaluation on. This chapter concludes with a brief summary of the results of how funds in Malta performed in relation to their respective benchmarks, pointing out core differences in performance between UCITS and non-UCITS funds, and the distinct ranking of funds obtained given the evaluation methods adopted. In conclusion, this dissertation summarises the main findings of the overall study, revealing that most of the funds did not manage to outperform their benchmark over the four-year period between 2009 and 2012. However, no concrete conclusions were possible with regards to whether or not UCITS type of funds performed better than non-UCITS funds. Nonetheless, any limitations faced throughout the completion of the study are pointed out. Lastly, recommendations for future studies to possibly assess funds' performance from a different perspective are highlighted.