A comparison of the performance of primary listed funds investing in Maltese capital markets

Abstract

Collective investment schemes in Malta now invest millions of liri on behalf of other people and these investment institutions now account for a large share of the securities listed on the Malta Stock Exchange. One of the functions of collective investment schemes is to attempt to achieve superior performance than the private investor. In light of the growing significance of collective investment schemes in the economy, and the weight given to past performance for future sales of units in a fund, it is important that their performance be evaluated. This study examines the performance of prescribed funds as well as the expenses charged to the assets of the fund and the composition of the portfolio with reference to the predetermined investment objective. Thus a wider picture is presented around the customary publicised figures of percentage returns to investors. The study suggests that equity-exposed funds provide superior returns to the more cautious bond funds. This superior performance may vindicate the higher expenses that these funds charge. Low costs are in fact critical for bond-fund investors since fixed-interest security portfolios usually produce skimpier long run returns than equity portfolios. The new 2001 legislation extends the withholding tax regime to a fund's interest income, thereby removing much of the previous advantage of investing in a bond fund. This development questions the viability of holding units in a portfolio investing in bonds at the shorter end of the market, as opposed to a direct investment in the underlying assets.