Performance evaluation of survivorship-biased open-ended mutual funds in Pakistan

Mutual fund industry in Pakistan becomes an integral form of investment for small and large investors due to benefits of high return and less expertise. Investors can maximize his or her return by investing in mutual funds. This paper investigates the performance of survivorship biased twenty-five open-ended mutual fund. Manager's stock selection ability of fund manager and diversification is also measured. Monthly net asset values are collected for data analysis. Karachi Stock Exchange 100 index is used for benchmark and 12-month Treasury Bills rate are used for risk free rate (RFR). Traditional models like Sharpe, Treynor and Sartino are used for performance measurement. On the basis different models analysis, funds perform in different ranking due to risk incorporation in these models and market instability. Overall performance of the funds remains best as compare to market but mismanagement observed in mutual fund industry in Pakistan during the study period. Best performance observed in Crosby Dragon Fund and Metrobank Pak Sovereign Fund Perpetual. All funds have a negative net selectivity and low performance was observed in stock selection ability of fund manager. Results revealed that all funds have positive diversification which represents the extra return that the portfolio should earn for not being completely diversified. It also shows that portfolio is not completely diversified and it contains unsystematic risk. Overall different risk and return and performance pattern observed due to market fluctuations and risk preferences of investors.