Abstract
In this article, I measure and compare the equity and bond market timing ability of hybrid-funds of funds (FOFs) and traditional hybrid funds. Hybrid mutual funds are funds that are invested in a combination of stocks and bonds. Hybrid funds of mutual funds are those that hold shares of other equity and fixed-income mutual funds. This fundamental difference between these two types of hybrid funds makes them an ideal laboratory to examine their stock market timing ability. Using daily fund and index data, I implement a multi-factor timing model, which successfully controls for the fixed-income exposure of hybrids funds. I find that, as a group, hybrid funds failed to correctly time both the equity and bond markets. In addition, I find no difference between the market timing ability of hybrid-FOFs and traditional hybrids.
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Notes
Some papers look at the hedge funds of funds, for example, Brown et al (2004). Real estate mutual funds are sometimes regarded as funds of mutual funds, as in Chiang et al (2008).
According to data provided by the ICI.
Bertin and Prather (2009) report that their 2003 sample held a median number of 18 funds.
The maturity model was selected instead of the sector model due to data limitations.
For further details, see Livingstone and O’Neal (1998) and O’Neal (1999).
Bollen and Busse (2001) advocate the use of daily fund return data, as high frequency data improves the model power especially when measuring timing ability.
Comer et al (2009) also employ Sharpe style analysis to examine portfolio exposure to the set of factors included in their models.
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Acknowledgements
I thank George Comer for his useful comments and for providing some of the data used in this study. I am grateful for the excellent research assistance of Juan Carlos Cardona. Any remaining errors are the author’s responsibility.
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Rodríguez, J. The timing ability of hybrid-funds of funds. J Asset Manag 16, 70–78 (2015). https://doi.org/10.1057/jam.2014.38
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DOI: https://doi.org/10.1057/jam.2014.38